The (Heterogenous) Economic Effects of Private Equity Buyouts
Steven J. Davis, John Haltiwanger, Kyle Handley, Josh Lerner, Ben Lipsius, Javier Miranda
IWH Discussion Papers,
No. 10,
2022
Abstract
The effects of private equity buyouts on employment, productivity, and job reallocation vary tremendously with macroeconomic and credit conditions, across private equity groups, and by type of buyout. We reach this conclusion by examining the most extensive database of U.S. buyouts ever compiled, encompassing thousands of buyout targets from 1980 to 2013 and millions of control firms. Employment shrinks 13% over two years after buyouts of publicly listed firms – on average, and relative to control firms – but expands 13% after buyouts of privately held firms. Post-buyout productivity gains at target firms are large on average and much larger yet for deals executed amidst tight credit conditions. A post-buyout tightening of credit conditions or slowing of GDP growth curtails employment growth and intra-firm job reallocation at target firms. We also show that buyout effects differ across the private equity groups that sponsor buyouts, and these differences persist over time at the group level. Rapid upscaling in deal flow at the group level brings lower employment growth at target firms.
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The Impact of Active Aggregate Demand on Utilisation-adjusted TFP
Konstantin Gantert
IWH Discussion Papers,
No. 9,
2022
Abstract
Non-clearing goods markets are an important driver of capacity utilisation and total factor productivity (TFP). The trade-off between goods prices and household search effort is central to goods market matching and therefore drives TFP over the business cycle. In this paper, I develop a New-Keynesian DSGE model with capital utilisation, worker effort, and expand it with goods market search-and-matching (SaM) to model non-clearing goods markets. I conduct a horse-race between the different capacity utilisation channels using Bayesian estimation and capacity utilisation survey data. Models that include goods market SaM improve the data fit, while the capital utilisation and worker effort channels are rendered less important compared to the literature. It follows that TFP fluctuations increase for demand and goods market mismatch shocks, while they decrease for technology shocks. This pattern increases as goods market frictions increase and as prices become stickier. The paper shows the importance of non-clearing goods markets in explaining the difference between technology and TFP over the business cycle.
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Inflation Puzzles, the Phillips Curve and Output Expectations: New Perspectives from the Euro Zone
Alessandro Sardone, Roberto Tamborini, Giuliana Passamani
Empirica,
February
2022
Abstract
Confidence in the Phillips Curve (PC) as predictor of inflation developments along the business cycle has been shaken by recent “inflation puzzles” in advanced countries, such as the “missing disinflation” in the aftermath of the Great Recession and the “missing inflation” in the years of recovery, to which the Euro-Zone “excess deflation” during the post-crisis depression may be added. This paper proposes a newly specified Phillips Curve model, in which expected inflation, instead of being treated as an exogenous explanatory variable of actual inflation, is endogenized. The idea is simply that if the PC is used to foresee inflation, then its expectational component should in some way be the result of agents using the PC itself. As a consequence, the truly independent explanatory variables of inflation turn out to be the output gaps and the related forecast errors by agents, with notable empirical consequences. The model is tested with the Euro-Zone data 1999–2019 showing that it may provide a consistent explanation of the “inflation puzzles” by disentangling the structural component from the expectational effects of the PC.
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Corporate Loan Spreads and Economic Activity
Anthony Saunders, Alessandro Spina, Sascha Steffen, Daniel Streitz
SSRN Working Paper,
2021
Abstract
We use secondary corporate loan-market prices to construct a novel loan-market-based credit spread. This measure has considerable predictive power for economic activity across macroeconomic outcomes in both the U.S. and Europe and captures unique information not contained in public market credit spreads. Loan-market borrowers are compositionally different and particularly sensitive to supply-side frictions as well as financial frictions that emanate from their own balance sheets. This evidence highlights the joint role of financial intermediary and borrower balance-sheet frictions in understanding macroeconomic developments and enriches our understanding of which type of financial frictions matter for the economy.
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Why is Unemployment so Countercyclical?
Lawrence J. Christiano, Martin S. Eichenbaum, Mathias Trabandt
Review of Economic Dynamics,
July
2021
Abstract
We argue that wage inertia plays a pivotal role in allowing empirically plausible variants of the standard search and matching model to account for the large countercyclical response of unemployment to shocks.
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Political Cycles in Bank Lending to the Government
Michael Koetter, Alexander Popov
Review of Financial Studies,
No. 6,
2021
Abstract
We study how political party turnover after German state elections affects banks’ lending to the regional government. We find that between 1992 and 2018, party turnover at the state level leads to a sharp and substantial increase in lending by local savings banks to their home-state government. This effect is accompanied by an equivalent reduction in private lending. A statistical association between political party turnover and government lending is absent for comparable cooperative banks that exhibit a similar regional organization and business model. Our results suggest that political frictions may interfere with government-owned banks’ local development objectives.
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Measuring the Impact of Household Innovation Using Administrative Data
Javier Miranda, Nikolas Zolas
Measuring and Accounting for Innovation in the Twenty-First Century,
NBER Studies in Income and Wealth, Vol 78 /
2021
Abstract
We link USPTO patent data to U.S. Census Bureau administrative records on individuals and firms. The combined dataset provides us with a directory of patenting household inventors as well as a time-series directory of self-employed businesses tied to household innovations. We describe the characteristics of household inventors by race, age, gender and U.S. origin, as well as the types of patented innovations pursued by these inventors. Business data allows us to highlight how patents shape the early life-cycle dynamics of nonemployer businesses. We find household innovators are disproportionately U.S. born, white and their age distribution has thicker tails relative to business innovators. Data shows there is a deficit of female and black inventors. Household inventors tend to work in consumer product areas compared to traditional business patents. While patented household innovations do not have the same impact of business innovations their uniqueness and impact remains surprisingly high. Back of the envelope calculations suggest patented household innovations granted between 2000 and 2011 might generate $5.0B in revenue (2000 dollars).
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(Since when) are East and West German Business Cycles Synchronised?
Stefan Gießler, Katja Heinisch, Oliver Holtemöller
Jahrbücher für Nationalökonomie und Statistik,
No. 1,
2021
Abstract
We analyze whether, and since when, East and West German business cycles are synchronised. We investigate real GDP, unemployment rates and survey data as business cycle indicators and we employ several empirical methods. Overall, we find that the regional business cycles have synchronised over time. GDP-based indicators and survey data show a higher degree of synchronisation than the indicators based on unemployment rates. However, synchronisation among East and West German business cycles seems to have become weaker again recently.
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Involuntary Unemployment and the Business Cycle
Lawrence J. Christiano, Mathias Trabandt, Karl Walentin
Review of Economic Dynamics,
January
2021
Abstract
Can a model with limited labor market insurance explain standard macro and labor market data jointly? We construct a monetary model in which: i) the unemployed are worse off than the employed, i.e. unemployment is involuntary and ii) the labor force participation rate varies with the business cycle. To illustrate key features of our model, we start with the simplest possible framework. We then integrate the model into a medium-sized DSGE model and show that the resulting model does as well as existing models at accounting for the response of standard macroeconomic variables to monetary policy shocks and two technology shocks. In addition, the model does well at accounting for the response of the labor force and unemployment rate to these three shocks.
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Transactional and Relational Approaches to Political Connections and the Cost of Debt
Taufiq Arifin, Iftekhar Hasan, Rezaul Kabir
Journal of Corporate Finance,
December
2020
Abstract
This paper examines the economic effects of a firm's approach to developing and maintaining political connections. Specifically, we investigate whether lenders favor transactional connection as opposed to relational connection. By tracing firms in a politically volatile emerging democracy in Indonesia, we find that firms following a transactional political connection strategy experience a relatively lower cost of debt than those with a relational strategy. The effect is more pronounced for firms facing high financial distress. The finding is robust to cost of bank loans and a variety of regression methods. Overall, the evidence suggests that in times of frequently changing political regimes, firms benefit from a transactional relationship with politicians as it enables to update connection with the government in power. Relational connection is valuable for a firm only when the political regime connected with it gains power.
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