Skip to main content

Summary

Artificial Intelligence, Firm Growth, and Industry Concentration
Author(s):
Tania Babina, Columbia University
Anastassia Fedyk, University of California at Berkeley
Alex X. He, University of Maryland
James Hodson, Jozef Stefan International Postgraduate School
Discussant(s):
Thomas Philippon, New York University and NBER
Abstract:

Which firms invest in artificial intelligence (AI) technologies, and how do these investments affect individual firms and industries? Babina, Fedyk, He, and Hodson provide a comprehensive picture of the use of AI technologies and their impact among US firms over the last decade, using a unique combination of job postings and individual-level employment profiles. The researchers introduce a novel measure of investments in AI technologies based on human capital and document that larger firms with higher sales, markups, and cash holdings tend to invest more in AI. Firms that invest in AI experience faster growth in both sales and employment, which translates into analogous growth at the industry level. The positive effects are concentrated among the ex ante largest firms, leading to a positive correlation between AI investments and an increase in industry concentration. However, the increase in concentration is not accompanied by either increased markups or increased productivity. Instead, firms tend to expand into new product and geographic markets. Their results are robust to instrumenting firm-level AI investments with foreign industry-level AI investments and with local variation in industry-level AI investments, and to controlling for investments in general information technology and robotics. Babina, Fedyk, He, and Hodson also document consistent patterns across measures of AI using firms' demand for AI talent (job postings) and actual AI talent (resumes). Overall, their findings support the view that new technologies, such as AI, increase the scale of the most productive firms and contribute to the rise of superstar firms.

Downloads:
Unlocking Access to Credit with Lockout Technology
Author(s):
Paul Gertler, University of California, Berkeley and NBER
Brett Green, Washington University in St. Louis
Catherine Wolfram, University of California, Berkeley
Discussant(s):
Efraim Benmelech, Northwestern University and NBER
Abstract:

A new form of collateralized lending has emerged, most prominently in developing countries, that is facilitated by a "lockout" technology, which allows the lender to temporarily disable the flow value of the collateral to the borrower without physically repossessing it. Gertler, Green, and Wolfram explore the effect of this new technology both in a model and in a randomized controlled trial using school-fee loans collateralized with a solar home system. They find that securing a loan with lockout drastically reduces default rates (by 15 pp) and increases the lender's rate of return (by 5 pp per month). Employing a variant of the Karlan and Zinman (2009) methodology, the researchers decompose the total effect and find that roughly one-third of the total effect is attributable to (ex-ante) adverse selection and two-thirds of the effect is attributable to (ex-post) moral hazard. Access to a school-fee loan significantly increases school enrollment and school-related expenditures without detrimental effects to household's balance sheet.

Downloads:
Restructuring vs Bankruptcy
Author(s):
Jason R. Donaldson, Washington University in St Louis
Edward Morrison, Columbia University
Giorgia Piacentino, Columbia University and NBER
Xiaobo Yu, Columbia Business School
Discussant(s):
David S. Scharfstein, Harvard University and NBER
Abstract:

Donaldson, Morrison, Piacentino, and Yu develop a model of a firm in financial distress. Distress can be mitigated by filing for bankruptcy, which is costly, or preempted by restructuring, which is impeded by a collective action problem. They find that bankruptcy and restructuring are complements, not substitutes: reducing bankruptcy costs facilitates restructuring, rather than crowding it out. And so does making bankruptcy more debtor-friendly, under a condition that seems likely to hold now in the U.S. The model gives new perspectives on current relief policies (e.g., DIP finance subsidies) and on long-standing legal debates (e.g., about APR violations).

Downloads:
Did the Paycheck Protection Program Hit the Target?
Author(s):
João Granja, University of Chicago
Christos Makridis, Stanford University
Constantine Yannelis, University of Chicago and NBER
Eric Zwick, University of Chicago and NBER
Discussant(s):
Gabriel Chodorow-Reich, Harvard University and NBER
Abstract:

This paper provides a comprehensive assessment of financial intermediation and the economic effects of the Paycheck Protection Program (PPP), a large and novel small business support program that was part of the initial policy response to the COVID-19 pandemic in the US. Granja, Makridis, Yannelis, and Zwick use loan-level microdata for all PPP loans and high-frequency administrative employment data to present three main findings. First, banks played an important role in mediating program targeting, which helps explain why some funds initially flowed to regions that were less adversely affected by the pandemic. The top-4 banks alone account for 36% of total pre-policy small business loans, but disbursed less than 3% of all PPP loans in the first round of funding. Second, the researchers exploit regional heterogeneity in lending relationships and individual firm-loan matched data to show that the short- and medium-term employment effects of the program were small compared to the program's size. Third, many firms used the loans to make non-payroll fixed payments and build up savings buffers, which can account for small employment effects and likely reflects precautionary motives in the face of heightened uncertainty. Limited targeting in terms of who was eligible likely also led to many inframarginal firms receiving funds and to a low correlation between regional PPP funding and shock severity. Their findings illustrate how business liquidity support programs affect firm behavior and local economic activity and how policy transmission depends on the agents delegated to deploy it.

Downloads:

This paper was distributed as Working Paper 27095, where an updated version may be available.

Exit vs. Voice
Author(s):
Eleonora Broccardo, University of Trento
Oliver D. Hart, Harvard University and NBER
Luigi Zingales, University of Chicago and NBER
Discussant(s):
Harrison Hong, Columbia University and NBER
Abstract:

Broccardo, Hart, and Zingales study the relative effectiveness of exit (divestment and boycott) and voice (engagement) strategies in promoting socially desirable outcomes in companies. They show that in a competitive world exit is less effective than voice in pushing firms to act in a socially responsible manner. Furthermore, the researchers demonstrate that individual incentives to join an exit strategy are not necessarily aligned with social incentives, whereas they are when well-diversified investors are allowed to express their voice. Broccardo, Hart, and Zingales discuss what social and legal considerations might sometimes make exit preferable to voice.

Downloads:

This paper was distributed as Working Paper 27710, where an updated version may be available.

The Credit Line Channel
Author(s):
Daniel Greenwald, Massachusetts Institute of Technology
John Krainer, Federal Reserve Bank of San Francisco
Pascal Paul, Federal Reserve Bank of San Francisco
Discussant(s):
Laura Blattner, Stanford University
Abstract:

Aggregate bank lending to firms expands following a number of adverse macroeconomic shocks, such as the outbreak of COVID-19 or a monetary policy tightening. Using loan-level supervisory data, Greenwald, Krainer, and Paul show that these dynamics are driven by draws on credit lines by large firms. Banks that experience larger drawdowns restrict term lending more -- crowding out credit of smaller firms. Using a structural model, the researchers show that credit lines are necessary to reproduce the flow of credit toward less constrained firms after adverse shocks. While credit lines increase total credit growth, their redistributive effects exacerbate the fall in investment.

Downloads:
Why is Dollar Debt Cheaper? Evidence from Peru
Author(s):
Bryan Gutierrez, SBS Peru
Victoria Ivashina, Harvard University and NBER
Juliana Salomao, University of Minnesota and NBER
Discussant(s):
Lorena Keller, University of Pennsylvania
Abstract:

In emerging markets, a significant share of corporate loans are denominated in dollars. Using novel data that enables us to see currency and the cost of credit, in addition to several other transaction-level characteristics, Gutierrez, Ivashina, and Salomao re-examine the reasons behind dollar credit popularity. They find that a dollar- denominated loan has an interest rate that is 2% lower per year than a loan in Peruvian Soles. Expectations of exchange rate movements do not explain this difference. The researchers show that this interest rate differential for lending rates is closely matched by the differential in the deposit market. Their results suggest that the preference for dollar loans is rooted in the local household preference for dollar savings and a banking sector that is closely matching its foreign assets and liabilities. Gutierrez, Ivashina, and Salomao find that borrower competitive pressure increases the pass-through of this differential.

Downloads:

Participants

Simona Abis, Columbia University
Ashwini Agrawal, London School of Economics
Snehal Banerjee, University of California at San Diego
Matteo Benetton, University of California at Berkeley
Indraneel Chakraborty, University of Miami
Bryan Gutierrez, SBS Peru
Joseph Hall, Stanford University
Andrew Hertzberg, Federal Reserve Bank of Philadelphia
Laurie Hodrick, Columbia University
Xing Huang, Washington University in St. Louis
Jessica Jeffers, University of Chicago
Kose John, New York University
Bige Kahraman, University of Oxford
Lorena Keller, University of Pennsylvania
Eben Lazarus, Massachusetts Institute of Technology
Andrew MacKinlay, Virginia Tech
Abhiroop Mukherjee, Hong Kong University of Science and Technology
Scott T. Nelson, University of Chicago
Pascal Paul, Federal Reserve Bank of San Francisco
Claudia Robles Garcia, Stanford University
David Schoenherr, Princeton University
Maya O. Shaton, Hebrew University
Oliver G. Spalt, University of Mannheim
Sheri T. Tice, Tulane University
Michela Verardo, London School of Economics
Chen Wang, University of Notre Dame
Scott E. Yonker, Cornell University
Xiaobo Yu, Columbia Business School

More from NBER

In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Retirement and Disability, and the Bulletin on Health — as well as online conference reports, video lectures, and interviews.

Economics of Digitization Figure 1
  • Article
The NBER Economics of Digitization Project, established in 2010 with support from the Alfred P. Sloan Foundation, provides a forum for disseminating research...
2020feldsteinlecture_Goldin.JPG
  • Lecture
Claudia Goldin, the Henry Lee Professor of Economics at Harvard University and a past president of the American...
2020 Methods Lecture Promo Image
  • Lecture
The extent to which individual responses to household surveys are protected from discovery by outside parties depends...