Federal Reserve Board
Institutional Affiliation: Federal Reserve Board
Information about this author at RePEc
NBER Working Papers and Publications
|March 2017||Firm Selection and Corporate Cash Holdings|
with Juliane Begenau: w23249
Among stock market entrants, more firms over time are R&D–intensive with initially lower profitability but higher growth potential. This sample-selection effect determines the secular trend in U.S. public firms’ cash holdings. A stylized firm industry model allows us to analyze two competing changes to the selection mechanism: a change in industry composition and a shift toward less profitable R&D–firms. The latter is key to generating higher cash ratios at IPO, necessary for the secular increase, whereas the former mechanism amplifies this effect. The data confirm the prominent role played by selection, and corroborate the model’s predictions.
|April 2015||Investment and The Cross-Section of Equity Returns|
with Gian Luca Clementi: w21064
We confront the one-factor production-based asset pricing model with the evidence on firm-level investment, to uncover that it produces implications for the dynamics of capital that are seriously at odds with the evidence. The data shows that, upon being hit by adverse profitability shocks, large public firms have ample latitude to divest their least productive assets and downsize. In turn, this reduces the risk faced by their shareholders and the returns that they are likely to demand. It follows that when the frictions to capital adjustment are shaped to respect the evidence on investment, the model–generated cross–sectional dispersion of returns is only a small fraction of what documented in the data. Our conclusions hold true even when either operating or labor leverage are modeled in ...
Published: GIAN LUCA CLEMENTI & BERARDINO PALAZZO, 2019. "Investment and the Cross-Section of Equity Returns," The Journal of Finance, vol 74(1), pages 281-321.
|July 2013||Entry, Exit, Firm Dynamics, and Aggregate Fluctuations|
with Gian Luca Clementi: w19217
Do firm entry and exit play a major role in shaping aggregate dynamics? Our answer is yes. Entry and exit propagate the effects of aggregate shocks. In turn, this results in greater persistence and unconditional variation of aggregate time-series. These are features of the equilibrium allocation in Hopenhayn (1992)'s model of equilibrium industry dynamics, amended to allow for investment in physical capital and aggregate fluctuations. In the aftermath of a positive productivity shock, the number of entrants increases. The new firms are smaller and less productive than the incumbents, as in the data. As the common productivity component reverts to its unconditional mean, the new entrants that survive become more productive over time, keeping aggregate efficiency higher than in a scenario w...
"Entry, Exit, Firm Dynamics, and Aggregate Fluctuations." American Economic Journal: Macroeconomics, forthcoming. With Dino Palazzo.