Published papers

We show that foreign capital liberalization reduces capital misallocation and increases aggregate productivity in India. The staggered liberalization of access to foreign capital across disaggregated industries allows us to identify changes in firms' input wedges, overcoming major challenges in the measurement of the effects of changing misallocation. For domestic firms with initially high marginal revenue products of capital (MRPK), liberalization increases revenues by 25%, physical capital by 57%, wage bills by 27%, and reduces MRPK by 35% relative to low MRPK firms. There are no effects on low MRPK firms. The effects of liberalization are largest in areas with less developed local banking sectors, indicating that foreign capital partially substitutes for an efficient banking sector. Finally, we develop a novel method to use natural experiments to bound the effect of changes in misallocation on treated industries' aggregate productivity. Treated industries' Solow residual increases by 4-17%.

Vox Dev Column ; VoxEU

Media Coverage: Ideas for India

Note on measuring changes in misallocation

This paper investigates the 2013 three-fold increase in the French dividend tax rate. Using administrative data covering the universe of firms over 2008-2017 and a quasi-experimental setting, we find that firms swiftly cut dividend payments and used this tax-induced increase in liquidity to invest more. Heterogeneity analyses show that firms with high demand and returns on capital responded most while no group of firms cut their investment. Our results reject models in which higher dividend taxes increase the cost of capital and show that the tax-induced increase in liquidity relaxes credit constraints which can reduce capital misallocation.

Vox column: VoxEU

This paper was retracted for two reasons: a coding error in the rendering of Figure 4, and a procedural error during the publication process. Both errors were unintentional and made in good faith. I have revisited the paper, and neither error changes any of its conclusions. All the tables, numbers, and figures are fully reproducible by the publicly available code repository.  The coding error only affects the rendering of Figure 4, and does not affect the other 17 graphs and 24 Tables that are part of the paper and its appendix.

This statement discusses the origin of the coding error, and details the process at the AER.

The AER published a comment by Bach, Bozio, Guillouzouic, and Malgouyres, which in particular shows that one specific control (the level of firm capital just before the reform) changes the results on firm investment. I was not given the permission to publish a reply. This supplemental note explains why this control is incorrect and shows that the results in Boissel Matray (2022) are actually robust. 

• This note explains the 2 reasons for retraction, the process at the AER, and the scientific evidence showing that the revisited results are almost quantitatively identical to the original.

• Matray (2023) subsumes and updates Boissel Matray (2022) to address the scientific concerns related to the reasons for retraction. It finds all the original results and contributions remain quantitatively unchanged.

As financial technology improves and data become more abundant, do market prices reflect this growing information and allocate capital more efficiently? While a number of recent studies have documented rises in aggregate price efficiency, we show that there are large cross-sectional differences. The previously-documented increases are driven by a rise in the informativeness of large, growth stocks. The informational efficiency of smaller assets' prices or prices of asset with less growth potential are either flat or declining. We document these new facts and use a structural model to decompose changes in price informativeness into the effects of changes in information and in growth or volatility characteristics of the assets. Finally, by computing the initial value of data implied by our structural model, we show that these findings could be explained partly by the fact that large firms have grown relatively larger. 

This paper provides causal evidence of local innovation spillovers, i.e. innovation by one firm fostering innovation by neighboring firms. First, I document that exogenous shocks to innovation by listed firms affect innovation by private firms in the same geographical area. I also find that such local innovation spillovers decline rapidly with distance. Second, I find that local innovation spillovers stem at least in part from knowledge diffusing locally through two channels: learning across local firms and inventors moving from their employer to both existing firms and newly started spin-outs. Finally, I study the two-way relationship between innovation spillovers and the availability of capital. I find that local innovation spillovers lead venture capital funds from outside the area to invest more in the local area, and that conversely capital availability amplifies local innovation spillovers.

Firms significantly reduce their investment in response to non-fundamental drops in the stock price of their product-market peers. We argue that this result arises because of managers' limited ability to filter out the noise in stock prices when using them as signals about their investment opportunities. The resulting losses of capital investment and shareholders' wealth are economically large, and affect even firms that are not facing severe financing constraints or agency problems. Our findings offer a novel perspective on how stock market inefficiencies can affect the real economy, even in the absence of financing or agency frictions.

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This paper studies the impact of .financial inclusion on wealth accumulation. Exploiting the US interstate branching deregulation between 1994 and 2005, we .find that an exogenous expansion of the supply of bank branches increases low-income household .financial inclusion. We then show that .financial inclusion fosters household wealth accumulation. We identify that banked households not only accumulate assets in interest bearing accounts, but also invest more in durable assets such as vehicles, have a better access to debt relative to their unbanked counterparts, and have a lower probability of facing financial strain. The results suggest that promoting .financial inclusion for low-income populations can improve household wealth accumulation and financial security.

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We study whether R&D-intensive firms are more resilient to trade shocks. We correct for the endogeneity of R&D using tax-induced changes to R&D cost. While rising imports from China lead to slower sales growth and lower profitability, these effects are significantly smaller for firms with a larger stock of R&D (by about half when moving from the bottom quartile to the top quartile of R&D). We provide evidence that this effect is explained R&D allowing firms to increase product differentiation. As a result, while firms in import-competing industries cut capital expenditures and employment, R&D-intensive firms downsize considerably less.

Media: voxeu, World Economic Forum, Forbes

Online appendix

We study how managers respond to the occurrence of a hurricane event when their firms are located in the neighborhood of the disaster area. We find that the sudden shock to the perceived liquidity risk leads managers to increase the amount of corporate cash holdings and to express more concerns about hurricane risk in 10-Ks/10-Qs, even though the real risk remains unchanged. Both effects are temporary. Over time, the perceived risk decreases, and the bias disappears. The documented distortion between subjective and objective risk is large. Overall, managerial reaction to salient risks is consistent with salience theories of choice. 

We study whether relationship lending is conducive to the financing of innovation. Exploiting a negative shock to relationships, we show that it reduces the number of innovative firms, especially those that depend more on relationship lending such as small, young, and opaque firms. This credit supply shock leads to reallocation of inventors whereby young and promising inventors leave small firms and move out of geographical areas where lending relationships are hurt. Overall, our results suggest that credit markets affect both the level of innovation activity and the distribution of innovative human capital across the economy.

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