Published Full Papers
Asset Allocation in Bankruptcy (with Shai Bernstein and Benjamin Iverson) [pdf] [Forthcoming, Journal of Finance]
Abstract: This paper investigates the consequences of liquidation and reorganization on the allocation and subsequent utilization of assets in bankruptcy. We identify 129,000 bankrupt establishments and construct a novel dataset that tracks the occupancy and employment at real estate assets over time. Using the random assignment of judges to bankruptcy cases as a natural experiment that forces some firms into liquidation, we find that even after accounting for reallocation, the long-run utilization of assets of liquidated firms is lower relative to assets of reorganized firms. These effects are concentrated in thin markets with few potential users and in areas with low access to finance. These findings suggest that when search frictions are large, liquidation can lead to an inefficient allocation of assets in bankruptcy.
Bankruptcy Spillovers (with Shai Bernstein, Xavier Giroud, and Benjamin Iverson) [pdf] [Forthcoming, Journal of Financial Economics]
Abstract: How do different bankruptcy approaches affect the local economy? Using U.S. Census microdata, we explore the spillover effects of reorganization and liquidation on geographically proximate firms. We exploit the random assignment of bankruptcy judges as a source of exogenous variation in the probability of liquidation. We find that employment declines substantially in the immediate neighborhood of the liquidated establishments, relative to reorganized establishments. The spillover effects are highly localized and concentrate in non-tradable and service sectors, consistent with a reduction in local consumer traffic and a decline in knowledge spillovers between firms. The evidence highlights the externalities that bankruptcy design can impose on non-bankrupt firms.
Corruption and Firms: Evidence from Randomized Anti-corruption Audits in Brazil (with Mounu Prem) [pdf]
Abstract: We exploit spatial variation in randomized anti-corruption audits related to government procurement contracts in Brazil to assess how corruption affects resource allocation, firm performance, and the local economy. After an anti-corruption crackdown, regions experience more entrepreneurship, improved access to finance, and higher levels of economic activity. This is inconsistent with corruption acting as "grease in the wheel." We find that two channels explain these facts: allocation of resources to less efficient firms, and distortions in government dependent firms. Using firms involved in corrupt business with the municipality, i.e. "corrupt firms," we find that the second channel is more important. Difference in difference estimation suggests that, after audits, the performance of corrupt firms improves relative to a similar set of unaffected firms. Corrupt firms invest more, increase borrowing and leverage, reallocate labor inside the firm, restructure the organizational design by increasing hierarchical layers, rely less on government contracts, and grow faster. Our findings provide novel micro-evidence on why corruption acts as an institutional failure that is detrimental to firm performance and economic growth.
Who Creates New Firms When Local Opportunities Arise? (with Shai Bernstein, Davide Malacrino, and Tim McQuade) [pdf]
Abstract: Firm entry plays an important role in the amplification and propagation of aggregate economic shocks. In this paper, we study the characteristics of the actual individuals who drive firm entry response to aggregate shocks, the marginal entrepreneurs. We use employer-employee matched data from Brazil and develop an empirical strategy that links fluctuations in global commodity prices to municipality level agricultural endowments to identify local demand shocks. We find that increases in global commodity prices lead to a significant new firm creation and this effect is almost entirely driven by young individuals. Within the young, we further document that the most responsive individuals are those who are more educated and who work in occupations that require generalist, managerial skills. In contrast, we find no such response among older skilled and educated individuals. Municipalities with better access to finance and higher concentrations of skilled individuals see a stronger entrepreneurial response by the young. These findings shed light on the potential ramifications of aging populations on the entrepreneurial responsiveness of economies to aggregate shocks.
Patronage and Selection in Public Sector Organizations (with Edoardo Teso and Mounu Prem) [pdf]
Abstract: This paper studies patronage - the use of public sector jobs to reward political supporters of the party in power - in Brazilian local governments. We exploit longitudinal data on the universe of Brazilian public sector employees over the 1997-2014 period, matched with information on more than 2,000,000 political supporters of Brazilian local parties. Using a regression discontinuity design that generates exogenous variation in individuals' connection to the party in power, we first document the presence of significant political favoritism in the allocation of jobs throughout the entire Brazilian public sector hierarchy: being a political supporter of the party in power increases the probability of having a public sector job by 10.5 percentage points (a 47% increase). Leveraging detailed information on supporters' and jobs' characteristics, we then show that patronage is the leading explanation behind this favoritism: jobs in the public sector are used as reward for political supporters. We find that patronage has significant real consequences for selection to public employment, as the amount of support provided to the party in power substitutes qualifications as determinant of hiring decisions. Finally, consistent with this negative impact on the quality of the selected public workers, we present evidence suggesting that patronage practices are associated with a worse provision of public services.
Other Papers and Writings
A Cross-Country Comparison of Dynamics in the Large Firm Wage Premium (with Joacim Tag, Michael Webb, and Stefanie Wolter) [pdf] [AEA: Papers and Proceedings 108: 323–27]
Abstract: We provide stylized facts on the existence and dynamics over time of the large firm wage premium for four countries. We examine matched employer-employee micro-data from Brazil, Germany, Sweden, and the UK, and find that the large firm premium exists in all these countries. However, we uncover substantial differences among them in the evolution of the wage premium over the past several decades. Moreover, we find no clear evidence of common cross-country industry trends. We conclude by discussing potential explanations for this heterogeneity, and proposing some questions for future work in the area.