2022 Theses Doctoral
Three Essays in Corporate Finance and Economic Development
This dissertation studies topics in the areas of corporate finance and economic development. The first chapter, entitled Capital Quality, Productivity, and Financial Constraints: Evidence from India is co-authored with Poorya Kabir. We provide novel evidence that reduced financial constraints increase physical capital quality and, consequently, productivity. We use a project-level investment dataset from India, CapEx, with data on project cost, capacity added to the firm, and investment's product category. We measure physical capital quality using Unit Investment Cost (UIC), defined as the project cost divided by the additional capacity. We find UIC displays significant variation across firms and is substantially associated with productivity and output quality. However, higher-quality physical capital is more expensive, and without sufficient internal funds, firms cannot invest in them.
We study a policy, the establishment of Debt Recovery Tribunals (DRT), which has generated staggered variation in access to external debt financing across different Indian states. We find that firms in treated states borrowed and invested more with all the increased investment coming from an increase in UIC and not from increased additional capacity. Furthermore, treated firms increased productivity and output quality, consistent with the hypothesis that a higher UIC induced by greater access to finance increased firm productivity and output quality. The effect of DRTs establishment is stronger in firms that rely more on external financing and industries with more scope for quality differentiation, a result that further supports this hypothesis. Available evidence suggests that other channels do not completely explain the increased productivity and output quality. Overall, this paper finds physical capital quality is an important determinant of productivity and output quality, and a firm's choice of physical capital quality depends on the availability of financing.
The second chapter, entitled Credit Supply and Entrepreneurship in Low-Income Regions is co-authored with Mehran Ebrahimian. We show that bank credit affects entrepreneurship, but only in low-income regions. We present a novel methodology to identify credit supply shock from regional demand shock using comprehensive data on small business loans between pairs of banks and counties in the US. While there is no impact in top income quartile counties, we document that a one std credit shock is associated with 1.6 and 1.7 percentage point employment and payroll growth in newborn firms in bottom income quartile counties. We show that this impact is long-lasting; is pronounced only in newborn firms; is not just a redistribution of labor from established to newborn firms; and does not follow with a reduction in labor productivity. We estimate that a credit redistribution of $100 from high- to low-income counties results in at least $6.5 annual labor earnings in aggregate.
In the third chapter, entitled Repair and Maintenance, Investment, and Financial Constraints, I study the role of repair and maintenance cost in capital accumulation which has been mostly ignored in finance and investment literature. I show that repair and maintenance cost is large relative to investment, persistent, and could substitute investment in some circumstances. Empirically I find that the repair and maintenance cost relative to the stock of capital is substantially higher for small and financially constrained firms. I claim that cheap upfront repair and maintenance activity makes it attractive to financially constrained firms. A stylized model of financially constrained firms with endogenous choice of maintenance vs. investment rationalizes the empirical findings. Overall, this paper introduces firm-level maintenance cost data to the literature, investigates its relation to investment, and documents several empirical properties of repair and maintenance costs.
This item is currently under embargo. It will be available starting 2024-06-17.
More About This Work
- Academic Units
- Thesis Advisors
- Wolfenzon, Daniel
- Calomiris, Charles W.
- Ph.D., Columbia University
- Published Here
- June 22, 2022