Work in progress
"Fiscal Policy and Credit Supply: The Procurement Channel" (with Miguel Ferreira, Francisco Queiró and Sujiao (Emma) Zhao)
We show that bank credit exposure to firms with public procurement contracts can amplify fiscal multipliers during a financial crisis. During the European sovereign debt crisis, the Portuguese government cut procurement spending by 4.3% of GDP. We find that this cut saddled banks with non-performing loans from firms with procurement contracts, which led to a reduction in credit supply to other firms. The credit supply shock in turn caused firm output to decline. Abstracting from general equilibrium effects, our estimates can account for a quarter of the output loss during the crisis, and imply a credit-driven fiscal multiplier of 0.4.
"Reorganization, Liquidation and Labor Reallocation in Bankruptcy" (with Gil Nogueira)
We examine the role of corporate reorganization as a source of labor insurance in bankruptcy using a random judge design and data from Portugal. Reorganized firms go through extensive labor reallocation and only keep about 20% of the workforce five years after reorganization. However, the corporate reorganization process has a positive and persistent effect on the quality of job contracts. In the short term (first year), workers are more likely to have job contracts. In the longer term (subsequent five years), workers earn more and are less likely to transition to less skill intensive occupations. Occupation fixed effects associated with earnings account for 46% of the earnings differential. Reorganization provides labor insurance to workers who move to new employers. Workers are less likely to be laid off and are more likely to quit and to find high-paying jobs in new employers.
Summary in the Harvard Law School Bankruptcy Roundtable and in the Oxford Business Law Blog.
"The Augmented Bank Balance-Sheet Channel of Monetary Policy" (with Christian Bittner, Florian Heider, Farzad Saidi, Glenn Schepens, and Carla Soares)
This paper studies how banks' balance sheets and funding costs interact in the transmission of monetary-policy rates to banks' credit supply to firms. To do so, we use credit-registry data from Germany and Portugal together with the European Central Bank's policy-rate cuts in mid-2014. The pass-through of the rate cuts to banks' funding costs differs across the euro-area currency union because deposit rates vary in their distance to the zero lower bound (ZLB). When the distance is shorter, banks' financing constraints matter less for the supply of credit and there is more risk taking. To rationalize these findings, we provide a simple model of an augmented bank balance-sheet channel where in addition to costly external financing, there is screening of borrowers and a ZLB on retail deposit rates. An impaired pass-through of monetary policy to banks' funding costs reduces their ability to lever up and weakens their lending standards.
EFA 2020 presentation: here.
"Banks’ Complexity and Risk: Agency Problems and Diversification Benefits" (with Sónia Félix)
Bank complexity is often associated with risk, due to moral hazard and agency problems. At the same time, complexity may be linked to diversification and scale economies, thus leading to less risk. In this paper, we provide empirical evidence on the relationship between bank complexity and risk-taking. We find a positive relationship between geographical complexity and bank risk. Banks that operate in more countries, both through banks and non-banks, have riskier balance sheets and more non-performing loans. Further, banks that operate in Africa have higher risk levels due to larger volatility of returns. The link between structural complexity and bank risk is weaker, but generally negative. Our results suggest that moral hazard and agency problems may be more acute when banks operate in many geographies and in emerging market economies. In contrast, the results are consistent with diversification and scale benefits arising from operating in more business areas.
"Bank Specialization in Lending to New Firms" (with Alexandra Matyunina, Ralph De Haas, and Steven Ongena )
We formulate a novel dimension of bank-lending specialization---specialization in lending to new firms---and investigate its impact on the creation, credit access, and survival of new businesses. We exploit a Portuguese reform that drastically reduced the red tape of starting a new firm and that was rolled out in a staggered manner across municipalities from mid-2005 onward. We show that while reducing regulatory barriers stimulates business creation, this effect depends crucially on the pre-reform number and market share of local banks specialized in lending to new firms. A greater presence of such specialized bank branches is associated with improved credit access and higher leverage of new local businesses. Moreover, new firms that obtain loans from specialized branches exhibit an up to 12 percent higher survival rate.
"Decomposing Employment Effects of a Government Support Program: Hires, Exits and Reallocation" (with Cláudia Custódio, Matthijs Oosterveen, and Clara Raposo)
We decompose the employment effects of a credit guarantee scheme to small firms during a crisis and a recovery period. We explore firm-level variation in access to the program to show that net employment increases, but only during crises. Using matched employer-employee data, we are able to decompose this effect into hires and exits. We find that firms eligible for the program hire more, but also have more exits. Hired workers come mostly from unemployment and exiting workers do not immediately find a new job, showing that there is no direct reallocation of workers across firms. Newly hired and exiting workers do not differ on most observable characteristics, suggesting that immediate adjustments are more related to quantity rather than quality. Government support to small firms during crises does not seem to lead to job retention of "zombie" workers.