IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v87y2024ics092911992400083x.html
   My bibliography  Save this article

Aggregate productivity, leased capital and market participation

Author

Listed:
  • You, Linqing

Abstract

The operating lease accounts for a large fraction of firms’ total productive physical capital and it is important for firms’ investment and real production. Empirical facts show that the aggregate productivity measure is an overestimation without considering leased capital (Hu et al., 2024). In this paper, I explore the effect of leased capital on aggregate productivity in general equilibrium. Leased capital can directly alleviate collateral constraints and mitigate capital misallocation, boosting aggregate productivity (Hu et al., 2020). However, leasing can lead to an increased demand for labor, driving up wages, which results in a decrease in the number of producing firms and their optimal capital scale. These indirect effects can lead to a decline in aggregate productivity. Quantitatively, the indirect effects dominate the direct effects with counterfactual leasing-improved policy, and thus aggregate productivity with leased capital decreases.

Suggested Citation

  • You, Linqing, 2024. "Aggregate productivity, leased capital and market participation," Journal of Corporate Finance, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:corfin:v:87:y:2024:i:c:s092911992400083x
    DOI: 10.1016/j.jcorpfin.2024.102621
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S092911992400083X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcorpfin.2024.102621?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andrea Lanteri, 2018. "The Market for Used Capital: Endogenous Irreversibility and Reallocation over the Business Cycle," American Economic Review, American Economic Association, vol. 108(9), pages 2383-2419, September.
    2. Alessandro Gavazza, 2011. "Leasing and Secondary Markets: Theory and Evidence from Commercial Aircraft," Journal of Political Economy, University of Chicago Press, vol. 119(2), pages 325-377.
    3. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    4. Francisco J. Buera & Joseph P. Kaboski & Yongseok Shin, 2011. "Finance and Development: A Tale of Two Sectors," American Economic Review, American Economic Association, vol. 101(5), pages 1964-2002, August.
    5. Devereux, Michael B & Head, Allen C & Lapham, Beverly J, 1996. "Monopolistic Competition, Increasing Returns, and the Effects of Government Spending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 233-254, May.
    6. Li, Kai & You, Linqing, 2023. "Leased capital and the investment-q relation," Journal of Corporate Finance, Elsevier, vol. 80(C).
    7. Kai Li & Jun Yu, 2023. "Leasing as a Mitigation of Financial Accelerator Effects," Review of Finance, European Finance Association, vol. 27(6), pages 2015-2056.
    8. Francisco J. Buera & Yongseok Shin, 2013. "Financial Frictions and the Persistence of History: A Quantitative Exploration," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 221-272.
    9. In Hwan Jo & Tatsuro Senga, 2019. "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 68-93, April.
    10. Aubhik Khan & Julia K. Thomas, 2013. "Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity," Journal of Political Economy, University of Chicago Press, vol. 121(6), pages 1055-1107.
    11. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2012. "Endogenous Entry, Product Variety, and Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 120(2), pages 304-345.
    12. Ellen McGrattan, 2020. "Intangible Capital and Measured Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 147-166, August.
    13. Hu, Weiwei & Li, Kai & Xu, Yiming, 2024. "Lease-adjusted productivity measurement," Journal of Banking & Finance, Elsevier, vol. 164(C).
    14. Rampini, Adriano A. & Viswanathan, S., 2013. "Collateral and capital structure," Journal of Financial Economics, Elsevier, vol. 109(2), pages 466-492.
    15. Gian Luca Clementi & Berardino Palazzo, 2016. "Entry, Exit, Firm Dynamics, and Aggregate Fluctuations," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(3), pages 1-41, July.
    16. Benjamin Moll, 2014. "Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?," American Economic Review, American Economic Association, vol. 104(10), pages 3186-3221, October.
    17. Andrea Lanteri & Adriano A. Rampini, 2023. "Constrained-Efficient Capital Reallocation," American Economic Review, American Economic Association, vol. 113(2), pages 354-395, February.
    18. In Hwan Jo & Tatsuro Senga, 2019. "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 68-93, April.
    19. Heitor Almeida & Murillo Campello, 2007. "Financial Constraints, Asset Tangibility, and Corporate Investment," The Review of Financial Studies, Society for Financial Studies, vol. 20(5), pages 1429-1460, 2007 12.
    20. repec:bla:jfinan:v:53:y:1998:i:1:p:131-162 is not listed on IDEAS
    21. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Relative Prices and Relative Prosperity," American Economic Review, American Economic Association, vol. 97(3), pages 562-585, June.
    22. Lifeng Gu & Dirk Hackbarth & Tim Johnson, 2018. "Inflexibility and Stock Returns," The Review of Financial Studies, Society for Financial Studies, vol. 31(1), pages 278-321.
    23. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
    24. Mandelker, Gershon N. & Rhee, S. Ghon, 1984. "The Impact of the Degrees of Operating and Financial Leverage on Systematic Risk of Common Stock," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(1), pages 45-57, March.
    25. Ferri, Michael G & Jones, Wesley H, 1979. "Determinants of Financial Structure: A New Methodological Approach," Journal of Finance, American Finance Association, vol. 34(3), pages 631-644, June.
    26. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-938, October.
    27. Jaimovich, Nir & Floetotto, Max, 2008. "Firm dynamics, markup variations, and the business cycle," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1238-1252, October.
    28. Crouzet, Nicolas & Eberly, Janice, 2021. "Intangibles, markups, and the measurement of productivity growth," Journal of Monetary Economics, Elsevier, vol. 124(S), pages 92-109.
    29. Andrea L. Eisfeldt & Adriano A. Rampini, 2009. "Leasing, Ability to Repossess, and Debt Capacity," The Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1621-1657, April.
    30. Yongqiang Chu, 2020. "Collateral, Ease of Repossession, and Leases: Evidence from Antirecharacterization Laws," Management Science, INFORMS, vol. 66(7), pages 2951-2974, July.
    31. Charles J. Hadlock & Joshua R. Pierce, 2010. "New Evidence on Measuring Financial Constraints: Moving Beyond the KZ Index," The Review of Financial Studies, Society for Financial Studies, vol. 23(5), pages 1909-1940.
    32. Virgiliu Midrigan & Daniel Yi Xu, 2014. "Finance and Misallocation: Evidence from Plant-Level Data," American Economic Review, American Economic Association, vol. 104(2), pages 422-458, February.
    33. Ryan Decker & John Haltiwanger & Ron Jarmin & Javier Miranda, 2014. "The Role of Entrepreneurship in US Job Creation and Economic Dynamism," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 3-24, Summer.
    34. Lev, Baruch, 1974. "On the Association between Operating Leverage and Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 9(4), pages 627-641, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sylvain Catherine & Thomas Chaney & Zongbo Huang & David Sraer & David Thesmar, 2022. "Quantifying Reduced‐Form Evidence on Collateral Constraints," Journal of Finance, American Finance Association, vol. 77(4), pages 2143-2181, August.
    2. In Hwan Jo & Tatsuro Senga, 2019. "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 68-93, April.
    3. In Hwan Jo & Tatsuro Senga, 2019. "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 68-93, April.
    4. Hu, Weiwei & Li, Kai & Xu, Yiming, 2023. "Leasing and the allocation efficiency of finance," Journal of Empirical Finance, Elsevier, vol. 74(C).
    5. Yicheng Wang, 2017. "Debt-Market Friction, Firm-specific Knowledge Capital Accumulation and Macroeconomic Implications," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 19-39, October.
    6. Ander Perez-Orive & Andrea Caggese, 2017. "Capital Misallocation and Secular Stagnation," 2017 Meeting Papers 382, Society for Economic Dynamics.
    7. Andrea Lanteri & Adriano A. Rampini, 2023. "Constrained-Efficient Capital Reallocation," American Economic Review, American Economic Association, vol. 113(2), pages 354-395, February.
    8. Wu, Guiying Laura, 2018. "Capital misallocation in China: Financial frictions or policy distortions?," Journal of Development Economics, Elsevier, vol. 130(C), pages 203-223.
    9. Dean Corbae & Pablo D’Erasmo, 2021. "Reorganization or Liquidation: Bankruptcy Choice and Firm Dynamics [Does Industry-wide distress Affect Defaulted Firms? Evidence from Creditor Recoveries]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(5), pages 2239-2274.
    10. Li, Kai & You, Linqing, 2023. "Leased capital and the investment-q relation," Journal of Corporate Finance, Elsevier, vol. 80(C).
    11. Matthias Kehrig & Nicolas Vincent, 2017. "Do Firms Mitigate or Magnify Capital Misallocation? Evidence from Planet-Level Data," CESifo Working Paper Series 6401, CESifo.
    12. Chanont Banternghansa, 2017. "Multi-Firm Entrepreneurship and Financial Frictions," PIER Discussion Papers 56, Puey Ungphakorn Institute for Economic Research.
    13. Ruiz-García, J. C., 2021. "Financial Frictions, Firm Dynamics and the Aggregate Economy: Insights from Richer Productivity Processes," Janeway Institute Working Papers 2103, Faculty of Economics, University of Cambridge.
    14. Yicheng Wang, 2015. "Can Wage Dynamics in Long-term Employment Relationships Help Mitigate Financial Shocks?," 2015 Meeting Papers 1189, Society for Economic Dynamics.
    15. Bernstein, Joshua & Richter, Alexander W. & Throckmorton, Nathaniel A., 2021. "Cyclical net entry and exit," European Economic Review, Elsevier, vol. 136(C).
    16. Ruiz-García, J. C., 2021. "Financial Frictions, Firm Dynamics and the Aggregate Economy: Insights from Richer Productivity Processes," Cambridge Working Papers in Economics 2157, Faculty of Economics, University of Cambridge.
    17. Andrea L. Eisfeldt & Yu Shi, 2018. "Capital Reallocation," NBER Working Papers 25085, National Bureau of Economic Research, Inc.
    18. Cristina Arellano & Yan Bai & Patrick J. Kehoe, 2019. "Financial Frictions and Fluctuations in Volatility," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2049-2103.
    19. Marios Karabarbounis & Patrick Macnamara, 2021. "Misallocation and Financial Frictions: the Role of Long-Term Financing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 44-63, April.

    More about this item

    Keywords

    Aggregate productivity; Leased capital; Collateral constraints; Market participation;
    All these keywords.

    JEL classification:

    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:87:y:2024:i:c:s092911992400083x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.