Firm Entry under Financial Frictions

Casares, Miguel; Poutineau, Jean‐Christophe

doi:10.1111/rode.12033

Cited by 3 publications

(6 citation statements)

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“…This specification also differentiates us from the recent firm entry literature, which has either not addressed the issue of how sunk costs are financed, or assumed financing by equity issues alone (Bergin and Corsetti, ; Bilbiie et al., ). Our result is also distinct from the few papers that do consider alternative means of entry financing, such as Stebunovs (), Karasoy (), Notz (), Casares and Poutineau (), Cacciatore et al . () and Uusküla (), in that we model firms with a choice between alternative means of financing, and the endogenous shift in this choice implies dynamics in key macro and financial variables that are more consistent with data…”

Section: Quantitative Analysiscontrasting

confidence: 96%

“… Our model is also distinct from the few papers that do model entry cost financing in the form of debt or bank lending, such as Stebunovs (), Karasoy (), Macnamara (), Notz (), Casares and Poutineau (), Cacciatore et al . () and Uusküla (), in that we model the endogenous choice that firms have between debt and equity financing rather than a fixed type of financing.…”

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confidence: 96%

“…When we replicate the Notz model, we find some counterfactual implications, especially the prominent rise in firm equity value in response to an adverse financial shock. Our article is also different fromStebunovs (2008),Casares and Poutineau (2013),Cacciatore et al (2015), which study the aggregate effect of financial deregulation, a long-run change, while we study the macroeconomic implications of a business-cycle shock.© 2016 Royal Economic Society. 536 T H E E C O N O M I C J O U R N A L [ M A R C H…”

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confidence: 99%

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Firm Entry and Financial Shocks

Bergin

Feng²,

Lin

2017

The Economic Journal

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This article shows that firm entry dynamics are an important part of the propagation of financial shocks to the real macroeconomy. A VAR documents empirically that adverse financial shocks are associated with significant declines in both new firm creation and equity values. A DSGE business cycle model combining endogenous firm entry and financial frictions, where firms have a choice of financing entry through debt or equity, can explain these facts. The model implies that adjustment in firm numbers can moderate the impact of financial shocks on aggregate output, as it buffers the equity value and financial stance of surviving firms.

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Section: Quantitative Analysiscontrasting

confidence: 96%

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Firm Entry and Financial Shocks

Bergin

Feng²,

Lin

2017

The Economic Journal

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“…Following Etro (2014), credit market imperfections could be introduced to take into account the access to credit for business creation. As underlined by Casares and Poutineau (2013), surveys of current and potential entrepreneurs suggest that raising funds from the market and/or bank loans is one of the biggest hurdles to invest in a new business. Furthermore, as shown in different studies (Greenwood and Jovanovic (1990); Jayaratne and Strahan (1996); Levine (1997); Beck et al (2000); Guiso et al (2004)) cross-sectional differences in the ability of capital markets to select and finance the most promising entrepreneurs may lead to important differences in entrepreneurship and productivity growth across economies.…”

Section: Contribution To the Literaturementioning

confidence: 99%

Financial frictions and the extensive margin of activity

Poutineau

Vermandel

2015

Research in Economics

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International audienceThis paper evaluates the role of financial intermediaries, such as banks, in the extensive margin of activity. We build a DSGE model that combines the endogenous determination of the number of firms operating on the goods market with financial frictions through a financial accelerator mechanism. We more particularly account for the fact that the creation of a new activity partly requires loans to finance spendings during the setting period. This model is estimated on US data between 1993Q1 and 2012Q3. We get three main results. First, financial frictions play a key role in determining the number of new firms. Second, in contrast with real macroeconomic shocks (where investment in existing production lines and the creation of new firms move in the opposite direction), financial shocks have a cumulative effect on the two margins of activity, amplifying macroeconomic fluctuations. Third, the critical role of financial factors is mainly observed in the period corresponding to the creation of new firms. In the long run, the variance of the effective entry share is almost explained by supply shocks

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“…This paper uses a Melitz (2003) style model to incorporate firm heterogeneity under imperfect competition to endogenize both the entry and exit decision of firms. The closest papers in this stream of literature are Casares and Poutineau (2014), Hamano and Zanetti (2017) and Totzek (2009). Oil price shocks lower expected profits and cause the firms with poor productivity to exit the market.…”

Section: Introductionmentioning

confidence: 99%

Oil price shocks, firm entry and exit in a heterogeneous firm model

Patra

2022

Canadian J of Economics

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Oil price shocks are considered to be one of the important factors behind US recessions, yet little is known about the transmission channels of oil price shocks. What complicates the matter further is the small share of oil in production. To address the issue the literature has incorporated amplifying channels such as endogenous depreciation or variable markups. I build a DSGE model with heterogeneous firms and show that inclusion of firm entry and exit amplifies the effect of oil price shocks. Using US firm-level data, I see that oil shocks are negatively correlated with firm entry and positively correlated with firm exit as predicted by the model. Further, the DSGE model suggests it is the bigger and more-productive firms that survive after an oil price shock. Résumé. Chocs pétroliers et entrées et sorties du marché dans un modèle d'entrepriseshétérogènes. On estime que les chocs pétroliers font partie des principaux facteurs à l'origine des récessions aux États-Unis. Pourtant, on ne sait que peu de choses sur leurs canaux de transmission. La problématique se complique davantage si l'on considère la faible part du pétrole dans la production. Pour résoudre cette question, la littérature a intégré des canaux d'amplification, notamment des dépréciations endogènes ou des taux de marge variables. Dans cet article nous développons un modèle d'équilibre général dynamique stochastique avec entreprises hétérogènes pour montrer que la prise en compte des entrées et sorties d'entreprises amplifie l'effet des chocs pétroliers. Grâce à des données d'entreprises américaines, nous observons qu'en matière de chocs pétroliers, la corrélation est négative avec les entrées d'entreprises sur le marché mais positive avec les sorties, tel que prévu par le modèle. En outre, le modèle d'équilibre général dynamique stochastique suggère que les entreprises plus grandes et plus productives ont davantage tendance à survivre à un choc pétrolier.

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Firm Entry under Financial Frictions

Cited by 3 publications

References 22 publications

Firm Entry and Financial Shocks

Firm Entry and Financial Shocks

Financial frictions and the extensive margin of activity

Oil price shocks, firm entry and exit in a heterogeneous firm model

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