Risky Business: Should Public Funds Go to Riskier Businesses? (JMP, solo-authored)

I study how borrower risk shapes the effects of government-backed, subsidized lending on firm performance. Linking Small Business Administration (SBA) loan records to confidential Census microdata covering the universe of U.S. firms, and instrumenting for access to SBA credit using quasi-exogenous variation in the local presence and intensity of “preferred” SBA lenders, I find that riskier firms benefit more from subsidized loans. I estimate that reallocation of SBA lending toward riskier borrowers would raise the revenue effect of SBA lending by 56.5%–158.9% and the employment effect by 73.0%–211.7%. I attribute this treatment heterogeneity to the competing incentives of lenders and governments: all else equal, lenders prefer lower-risk borrowers to minimize default probabilities, while governments prefer higher-risk borrowers as they share in the benefit of high upside risk while bearing limited exposure to downside risk. The results imply that targeting subsidized loans toward riskier firms can materially improve the efficiency of public credit programs.

Private Equity and Market Power (with Jonathan Cohn and Changyong Song)

Status: Census Proposal Under Review

We study the role of private equity in increasing market concentration in both product and labor markets. We focus on how private equity bolsters firms’ market power by consolidating industries and acquiring incumbent firms. While this “roll-up” of sectors by private equity has been discussed in the popular press, little academic work has systematically examined this phenomenon. We have two planned difference-in-difference approaches, one at the market level, comparing markets that have been impacted by PE investment to markets that have not before and after PE investments, and one at the firm level, comparing firms receiving PE investment to a matched control set before and after PE investment.