Working Papers

Asset Allocation in Bankruptcy (with Shai Bernstein and Benjamin Iverson) [pdf] [online appendix] [R&R at the 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. The results are consistent with the interpretation that in markets with high search costs, or financial frictions, liquidation may lead to inefficient asset allocation. 

Bankruptcy Spillovers (with Shai Bernstein, Xavier Giroud, and Benjamin Iverson) [pdf] [R&R at the Journal of Financial Economics]
Abstract: How do different bankruptcy approaches affect the local economy? Using U.S. Census microdata at the establishment level, 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 within a five-year period, employment declines substantially in the immediate neighborhood of the liquidated establishments, relative to reorganized establishments. Most of the decline is due to lower growth of existing establishments and, to a lesser extent, reduced entry into the area. The spillover effects are highly localized and concentrate in the non-tradable and service sectors, particularly when the bankrupt firm operates in the same sector. These results suggest that liquidation leads to a reduction in consumer traffic to the local area and to a decline in knowledge spillovers between firms. The evidence highlights the externalities that bankruptcy design can impose on non-bankrupt firms.

Corruption and Firms (with Mounu Prem[available upon request]
Abstract: Is corruption harmful to firms? We study this question by estimating the private sector impact of a large government program aimed at fighting corruption and inefficiency in Brazilian local bureaucracies. Exploiting a special feature of the auditors' instruction manual, we are able to manually construct a novel dataset on 34,000 corruption cases involving firms. This dataset is then linked to matched employer-employee data, to the universe of federal procurement contracts and government loans, to the manufacturing Census, as well as to public prosecutions and electoral data. Our identification strategy mainly relies on the randomization of the audits to estimate dynamic difference-in-difference models. First, we show that the audits lead to a partial reallocation of economic activity away from incumbent business establishments towards new entrants. Our evidence suggests that this is primarily driven by a reduction in private sector corruption leading to higher entry in the local economy. Second, we uncover striking heterogeneity at the firm level. Firms that are directly affected by government corruption strongly benefit from the audits, as reflected by lower exit rates and higher employment in the short and the long-term. Third, we test several theories of corruption by investigating the mechanisms behind the positive effects of the anti-corruption program on firms. We find evidence for three of them: (i) access to finance; (ii) composition of government contracts; and (ii) within-firm restructuring. We conclude by discussing efficiency considerations and policy implications.

Patronage in the Allocation of Public Sector Jobs (with Mounu Prem and Edoardo Teso) [available upon request]
Abstract: This paper provides causal estimates of the importance of patronage in public sector employment. Using administrative matched employer-employee data on the universe of public sector workers in Brazil for the period 1997-2014, we construct a unique dataset on the labor market careers of more than 2,000,000 political supporters, namely local political candidates and campaign donors. We first establish three stylized facts: (i) electoral cycles are a key determinant of bureaucratic turnover; (ii) political supporters are more likely than other citizens to hold a public post, especially when they are connected to the party in power; (iii) public sector employees are less qualified than their counterparts in the private sector. We then use a regression discontinuity design that leverages very competitive municipal elections to identify the causal impact of being aligned to the party in power on individual careers in the public sector. We uncover a sizable "patronage effect": after the election, political supporters of the ruling party are on average 9.4 percentage points more likely to be employed in the public sector - a 39% increase relative to the pre-election period. The presence of patronage is significant throughout the entire public sector hierarchy, and individuals are rewarded proportionally to their level of support. We conclude by showing that patronage may have real effects on the quality of the bureaucracy.

Work in Progress

Asset Allocation in the Economy (with Shai Bernstein and Benjamin Iverson)
Marginal Entrepreneurs (with Shai Bernstein and Josh Rauh)
Political Uncertainty, Entrepreneurship, and Labor Reallocation Within Firms
The Real Effects of Corporate Misconduct
(with Mounu Prem)
Transparency, Firm Performance, and Business Networks: Evidence from the Construction Sector in Uganda (with Francesco Loiacono and Mounu Prem[fieldwork]