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Corporate financial structure, misallocation and total factor productivity

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  • Uras, Burak R.

Abstract

This paper studies the quantitative relevance of the cross-sectional dispersion of corporate financial structure in explaining the intra-industry allocation efficiency of productive factors. I solve a heterogeneous firms model with financial constraints and distortions to the marginal rental-rate of capital, and develop a measure for the intra-industry misallocation of factors of production. The distribution of capital rental rate and two types of firm-level balance sheet characteristics (pledgeability and liquid asset positions) determine the extent of misallocation and industry level total factor productivity (TFP). I calibrate the model using firm-level balance sheet data from seven major industry clusters of the US economy. The counterfactual policy experiments show that weakening the observed balance sheet positions for financially constrained firms leads to a reallocation of production factors from firms with high cost distortions to firms with low cost distortions and cause quantitatively important industry level TFP losses.

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  • Uras, Burak R., 2014. "Corporate financial structure, misallocation and total factor productivity," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 177-191.
    • Handle: RePEc:eee:jbfina:v:39:y:2014:i:c:p:177-191
    DOI: 10.1016/j.jbankfin.2013.11.011
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    3. Mahmoudzadeh, Amineh & Nili, Masoud & Nili, Farhad, 2018. "Real effects of working capital shocks: Theory and evidence from micro data," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 191-218.

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    More about this item

    Keywords

    Financial structure; Distortions; Misallocation; Total factor productivity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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