Work in Progress
Information Frictions in Credit Markets
Abstract : Motivated by empirical evidence I document on local credit markets in France using data on more than 3.5 million bank-firm relationships, I propose a theory of bank-firm matching subject to search frictions. Firms undergo a costly search process to locate and match with the right banking partner. Upon matching, agency frictions hinder banks ability to optimally screen and monitor projects. I structurally estimate my model on French data using the staggered roll-out of Broadband Internet, from 1997 to 2007, as a shock to search frictions. I confirm the model predictions that a reduction in search frictions affects the allocation of credit and the dynamics of firm-bank matching. Finally, I use the structure of my model to quantify the impact of this technology-induced reduction in search frictions on loan prices. I find that broadband internet access reduced the cost of debt for small businesses by 4.9%.
Abstract : Using micro-data of the universe of bank-SME relationships in France, we show that banks specialize locally (at the branch level) by industry, and that this specialization shapes the equilibrium amount of borrowing by small firms. For identification, we exploit the reallocation of local clients from closed down branches to nearby branches of the same bank, which induced quasi-random variation in the match between a firm’s industry and the industry of specialization of the lending branch. We show that branch reallocation leads, on average, to a substantial and permanent decline in small firm borrowing. This decline is twice larger for firms whose accounts are reallocated from branches less specialized in their industry than the original one.
Abstract : Domestic outsourcing has grown substantially in developed countries over the past two decades. While some studies document its implications for earnings inequality, very little is known regarding the drivers of this phenomenon. This paper addresses this question by studying the impact of the staggered diffusion of broadband internet on job outsourcing by French firms. We show that BI led firms to outsource some non-core occupations to service contractors, both in the low and high skill segment. In both cases, we find that employment related to these occupations become increasingly concentrated in firms specializing in these activities, and less likely to become performed in-house within firms specialized in other activities. Finally, we provide suggestive evidence that high-skill workers experience salary gains from being outsourced, while low-skill workers lose.
Aggregate Implications of Credit Relationship Flows: A Tale of Two Margins with Yasser Boualam. Submitted
Abstract : This paper documents the aggregate properties of credit relationship flows within the commercial loan market in France between 1998 and 2018. Using detailed bank-firm level data from the French Credit Register, we show that banks actively and continuously adjust their credit supply along both intensive and extensive margins. We particularly highlight the importance of gross flows associated with credit relationships and show that they are (i) volatile and pervasive throughout the cycle, and (ii) can account for up to 48 percent of the cyclical and 90 percent of the long-run variations in aggregate bank credit.
Abstract : In this paper, we test for the presence of “technology-induced” trade in France between 2000 and 2007 and assess its impact on consumer welfare. We use the staggered roll-out of broadband internet to estimate its causal impact on the importing behavior of firms. Using an event-study design, we find that broadband expansion increases imports. Our estimates imply that the increase in the value of imports in the absence of broadband expansion would have been a 15% lower. We further find that the sub-extensive margin (number of products and sourcing country per firm) is the main margin of adjustment and that the impact is higher for capital goods. Finally, we develop a firm-based model of importing and adopt a sufficient statistics approach in order to quantify the contribution of the import-channel to the overall effect of broadband on consumer welfare. Within this model, our reduced-form estimates imply that broadband internet reduced the consumer price index by 1.7% and that the import-channel accounts for a quarter of that effect.
Abstract : Suárez-Serrato and Zidar (2016) identify state corporate tax incidence in a spatial equilibrium model with imperfectly mobile firms. Their identification argument rests on comparative-statics omitting a channel implied by their model: the link between common determinants of a location’s attractiveness and the average idiosyncratic productivity of firms choosing that location. This compositional margin causes the labor demand elasticity to be independent from the product demand elasticity, impeding the identification of incidence from reduced-form estimates. Assigning consensual values to the unidentified parameters, we find that the incidence share born by firm-owners is closer to 25% than the 40% initially reported.
Abstract : We exploit a new dataset of consolidated balance sheets for some 1,850 private French corporate groups, in order to investigate the relationship between corporate investment and the cost of capital. We notably construct firm-level measures of the weighted average cost of capital (WACC) that account for industry-specific values of the cost of equity and reflect the actual capital structure of firms. We find that a high WACC drags down investment: a one SD increase in the real WACC (+2 pp) is associated on average with a reduction by 0.65 pp in the investment rate.
Political Uncertainty, Risk of Frexit and European Sovereign Spreads with Clément Malgouyres.
Applied Economics Letters (2018)
Abstract : Using data from a prediction market (crowd-based forecasts), we build a daily measure capturing the risk of Frexit related to the 2017 French presidential elections. We study how unexpected changes in this new measure of political uncertainty in France affect European sovereign spreads vis-à-vis Germany. We show that our uncertainty proxy drives not only the French sovereign spread but also the spreads of those EU countries deemed the most vulnerable to the risk of desegregation of the Euro Zone. These results suggest that specific political uncertainty affects short-term investors expectations and may outweigh other economic determinants of sovereign spreads shortly prior to high stake elections