The Journal of Finance

How Do Financing Constraints Affect Firms’ Equity Volatility?

Published: 02/05/2018   |   DOI: 10.1111/jofi.12610

DANIEL CARVALHO

Theory suggests that financing frictions can have significant implications for equity volatility by shaping firms’ exposure to economic risks. This paper provides evidence that an important determinant of higher equity volatility among research and development (R&D)‐intensive firms is fewer financing constraints on firms’ ability to access growth options. I provide evidence for this effect by studying how persistent shocks to the value of firms’ tangible assets (real estate) affect their subsequent equity volatility. The analysis addresses concerns about the identification of these balance sheet effects and shows that these effects are consistent with broader patterns on the equity volatility of R&D‐intensive firms.

The Real Effects of Government‐Owned Banks: Evidence from an Emerging Market

Published: 11/21/2013   |   DOI: 10.1111/jofi.12130

DANIEL CARVALHO

Using plant‐level data for Brazilian manufacturing firms, this paper provides evidence that government control over banks leads to significant political influence over the real decisions of firms. I find that firms eligible for government bank lending expand employment in politically attractive regions near elections. These expansions are associated with additional (favorable) borrowing from government banks. Further, these persistent expansions take place just before competitive elections, and are associated with lower future employment growth by firms in other regions. The analysis suggests that politicians in Brazil use bank lending to shift employment towards politically attractive regions and away from unattractive regions.

The Working Capital Credit Multiplier

Published: 08/27/2024   |   DOI: 10.1111/jofi.13385

HEITOR ALMEIDA, DANIEL CARVALHO, TAEHYUN KIM

We provide novel evidence that funding frictions can limit firms’ short‐term investments in receivables and inventories, reducing their production capacity. We propose a credit multiplier driven by these considerations and empirically isolate its importance by comparing how a similar firm responds to shocks differently when these shocks are initiated in their most profitable quarter (“main quarter”). We implement this test using recurring and unpredictable shocks (e.g., oil shocks) and provide extensive evidence supporting our identification strategy. Our results suggest that funding constraints and credit multiplier effects are significant for smaller firms that heavily rely on financing from suppliers.

The Impact of Bank Credit on Labor Reallocation and Aggregate Industry Productivity

Published: 09/17/2018   |   DOI: 10.1111/jofi.12726

JOHN (JIANQIU) BAI, DANIEL CARVALHO, GORDON M. PHILLIPS

We provide evidence that the deregulation of U.S. state banking markets leads to a significant increase in the relative employment and capital growth of local firms with higher productivity, and that this effect is concentrated among young firms. Using financial data for a broad range of firms, our analysis suggests that this effect is driven by a shift in the composition of local bank credit supply toward more productive firms. We estimate that this effect translates into economically important gains in aggregate industry productivity and that changes in the allocation of labor play a central role in driving these gains.