We study the impact of Quickpay, a reform that permanently accelerated payments to small business contractors of the U.S. government. We find a strong direct effect of the reform on employment growth at the firm level. However, we document sub-stantial crowding out of nontreated firms’ employment within local labor markets. While the overall net employment effect is positive, it is close to zero in tight labor markets.
United States, federal government procurement amounts to 4% of GDP with $100 billion of goods and services purchased directly from small firms. Government contracts typically require payment one to two months following the approval of an invoice. Thus government contractors are effectively lending to the government while simultaneously having to finance their payroll and working capital through the production process or by borrowing from banks.
Quickpay reform of 2011. Quick-pay indefinitely accelerated payments to a subset of small business contractors of the U.S. federal government, cutting the time between invoice approval and payment by half, from 30 days to 15 days. The focus of our analysis is the change in these outcomes from 2011Q1 to 2015Q1.
To study their effects on refinancing, we exploit a Federal Housing Administration policy change that excluded unemployed borrowers from refinancing and increased others' out‐of‐pocket costs substantially. These changes dramatically reduced refinancing rates, particularly among the likely unemployed and those facing new out‐of‐pocket costs. Our results imply that unemployed and liquidity‐constrained borrowers have a high latent demand for refinancing.
To quantify the effect of these frictions on refinancing in a recession, we exploit a sharp policy change introduced by the Federal Housing Administration (FHA) during the height of the Great Recession. Prior to late 2009, borrowers with an FHA mortgage were typically not constrained by out‐of‐pocket closing costs or employment documentation requirements. Instead, these borrowers were allowed to roll all closing costs into their new mortgage and were not required to provide any income or employment documentation so long as they refinanced into a new FHA mortgage through the FHA's Streamline Refinance (SLR) Program. However, in response to the general deterioration in the mortgage market, the FHA eliminated both of these provisions from the SLR Program in late 2009. Under the revised program, borrowers with negative equity had to pay for any upfront refinancing fees out‐of‐pocket, and unemployed borrowers were prohibited from refinancing altogether.
To address this concern, we estimate difference‐in‐differences specifications that use the unaffected conventional (non‐FHA) market as a control group. This approach is motivated by a similar graphical analysis of refinancing in the conventional market, which does not reveal any discrete changes around the time of the policy change.
I exploit a Court of Appeals Federal Circuit ruling that increased firms’ property rights to employee patents. I find that firm ownership of patents increases firms’ total debt-to-assets ratio by 18%, which is equivalent to a $62 million increase in total debt. I also provide evidence that the firm ownership of patents improves innovation productivity and patent pledgeability, which further ease firms’ access to secured and longer-maturity debt.