Finance, Managerial Inputs, and Misallocation
American Economic Review: Insights
vol. 5,
no. 3, September 2023
(pp. 409-26)
Abstract
In standard macrofinance models, financial constraints mainly affect small or young firms but not large or old ones due to the self-financing mechanism, and the dispersion of marginal revenue product of capital (MRPK) of a firm cohort is less persistent than in the data. We extend a standard model by allowing firms to hire managers, and large firms hire disproportionately more managers, consistent with data. In our model, financial constraints and the dispersion of MRPK persist, and even large firms are likely to be constrained. The productivity loss from financial frictions is also substantially amplified.Citation
Chen, Chaoran, Ashique Habib, and Xiaodong Zhu. 2023. "Finance, Managerial Inputs, and Misallocation." American Economic Review: Insights, 5 (3): 409-26. DOI: 10.1257/aeri.20220285Additional Materials
JEL Classification
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D25 Intertemporal Firm Choice: Investment, Capacity, and Financing
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L25 Firm Performance: Size, Diversification, and Scope
- M10 Business Administration: General
- O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- P31 Socialist Enterprises and Their Transitions