Erica X. N. Li, Cheung Kong Graduate School of Business
Chen Xue, University of Cincinnati
Lu Zhang, Ohio State University
Abstract: Integrating national accounting with financial accounting, we construct firm-specific current-cost capital stocks for the entire Compustat universe. The firm-level current cost investment rate distribution is heavily right-skewed, with a small fraction of negative investment rates, 5.51%, but a huge fraction of positive investment rates, 91.64%. Firm-level investment is also lumpy, featuring a fraction of 32.66% for positive spikes (investment rates higher than 20%). For a typical firm, 39% of total investment is completed within 20% of the sample years. Our data infrastructure also contains firm-specific economic depreciation rates and capital and investment price deflators.
Abstract: China's Five-Year Plans (industrial policies targeting specific industries) displace US production/employment and heighten plant closures in the same industries. The shocks were not anticipated by the US stock market, but firms in the treated industries suffer valuation loss afterwards. Firms adjust by shifting production to upstream or downstream industries benefiting from the boost, or offshoring to government-endorsed industries in China. Such within-firm adjustments offset negative shocks among firms with preexisting toeholds in the "beneficiary" industries or production overseas, suggesting a novel role of diversification. Financial access and labor fluidity are essential for firms to withstand global economic shocks.
Abstract: Firms with ample financial slack are unconstrained... or are they? In a field experiment that randomly expands debt capacity on business credit lines, treated small-and-medium enterprises (SMEs) draw down 35 cents on the dollar of expanded debt capacity in the short-run and 55 cents in the long-run despite having debt levels far below their borrowing limit before the intervention. SMEs direct new borrowing to financing investment gradually over time and do not exhibit a measurable impact on delinquencies. Heterogeneity analysis by the risk of being at the credit line limit supports the SME motive to preserve financial flexibility.
