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Working Paper
Entrepreneurship through Employee Mobility, Innovation, and Growth
Firm-level productivity differences are big and largely ascribed to ex-ante heterogeneity in the entrepreneurs’ growth potential at birth. Where do these ex-ante differences come from, and what can the policy do to encourage the entry of high-growth entrepreneurs? I study empirically and by means of a quantitative growth model the spinout firms: the firms founded by former employees of the incumbent firms. By focusing on innovating spinouts identified through the inventor mobility in the patent data, I document that spinout entrants significantly outperform regular entrants throughout their ...
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Nonlinear Firm Dynamics
This paper presents empirical evidence on the nature of idiosyncratic shocks to firms and discusses its role for firm behavior and aggregate fluctuations. We document that firm-level sales and productivity are hit by heavy-tailed shocks and follow a nonlinear stochastic process, thus departing from the canonical linear. We estimate a state-of-the-art model to flexibly capture the rich dynamics uncovered in the data and characterize the drivers of nonlinear persistence and non-Gaussian shocks. We show that these features are crucial to get empirically plausible volatility and persistence of ...
Working Paper
The Firm Size and Leverage Relationship and Its Implications for Entry and Concentration in a Low Interest Rate World
Larger firms (by sales or employment) have higher leverage. This pattern is explained using a model in which firms produce multiple varieties and borrow with the option to default against their future cash ow. A variety can die with a constant probability, implying that bigger firms (those with more varieties) have lower coefficient of variation of sales and higher leverage. A lower risk-free rate benefits bigger firms more as they are able to lever more and existing firms buy more of the new varieties arriving into the economy. This leads to lower startup rates and greater concentration of ...
Working Paper
Skilled Immigration Frictions as a Barrier for Young Firms
This paper studies the impact of skilled immigration policy frictions in the United States on technology-intensive firms by age cohorts. We use firm-level data and a general equilibrium model with endogenous firm entry and exit. The empirical results show that skilled immigration policy frictions directly influence young firm dynamics in technology-intensive sectors by affecting firm survival. Our general equilibrium model incorporates skilled foreign labor and immigration policy frictions that mimic the H-1B policy and matches the age distribution of firms in high-technology sectors, showing ...
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Firm Dynamics and Random Search over the Business Cycle
I build a tractable random search model with firm dynamics, on-the-job search, and aggregate shocks. Multi-worker firms make recruitment decisions, choose whether to enter or exit the market, and design wage contracts. Tractability is obtained by showing that, under a set of assumptions on the recruitment technology, the decisions of workers and firms can be expressed in terms of the firms’ current productivity. I introduce a numerical solution method to accommodate aggregate shocks in this environment and show that the model can replicate salient features of both firm-level data on ...
Working Paper
Connecting to Power: Political Connections, Innovation, and Firm Dynamics
How do political connections affect firm dynamics, innovation, and creative destruction? To answer this question, we build a firm dynamics model, where we allow firms to invest in innovation and/or political connection to advance their productivity and to overcome certain market frictions. Our model generates a number of theoretical testable predictions and highlights a new interaction between static gains and dynamic losses from rent-seeking in aggregate productivity. We test the predictions of our model using a brand-new dataset on Italian firms and their workers. Our dataset spans the ...
Working Paper
Barriers to Creative Destruction: Large Firms and Nonproductive Strategies
This working paper reviews recent empirical evidence on large firms and nonproductivestrategies that hinder creative destruction and reallocation. The focus is on three types ofnonproductive strategies: political connections, nonproductive patenting, and anticompetitiveacquisitions. Across different contexts using granular micro data sets, we overwhelmingly see that asfirms gain market share, they increasingly rely on nonproductive strategies but reduce theirproductive, innovation-based strategies. I also discuss theoretical channels, aggregate implications,and potentials for some policies.
Working Paper
Bank Capital Pressures, Loan Substitutability, and Nonfinancial Employment
We exploit the cross-state, cross-time variation in bank tangible capital ratios-brought about by bank branch deregulation on a state-by-state basis-to identify the effects of bank capital pressures on employment and firm dynamics during two waves of changes in bank capital regulation. We show that stronger capital pressures temporarily slowed down growth in employment in industries that depend on external finance, retarding growth in the average size of firms rather than in the number of firms. Such effects were particularly strong for smaller firms that may not have had access to national ...
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Demographic origins of the startup deficit
We propose a simple explanation for the long-run decline in the U.S. startup rate. It originates from a slowdown in labor supply growth since the late 1970s, largely pre-determined by demographics. This channel can explain roughly 60 percent of the decline and why incumbent firm survival and average growth over the lifecycle have changed little. We show these results in a standard model of firm dynamics and test the mechanism using cross-state variation in labor supply growth. Finally, we show that a longer entry rate series imputed using historical establishment tabulations rises over the ...
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Grown-up business cycles
We document two striking facts about U.S. firm dynamics and interpret their significance for employment dynamics. The first is the dramatic decline in firm entry and the second is the gradual shift of employment toward older firms since 1980. We show that despite these trends, the lifecycle dynamics of firms and their business cycle properties have remained virtually unchanged. Consequently, aging is the delayed effect of accumulating startup deficits. Together, the decline in the employment contribution of startups and the shift of employment toward more mature firms contributed to the ...