Papers
Papers
Factor Misallocation and High-Growth Firms (R&R, Review of Economic Dynamics)
Working Paper, May 2025
Abstract: This paper studies whether financial frictions deter young, potentially high-growth firms from growing and their macroeconomic implications. Using financial information of Spanish companies, I find that some firms expect higher growth rates than others at birth, thus being more determined to grow. Additionally, evidence on the life-cycle dynamics of firm factors of production sheds light on distortions that may impede firm growth. Motivated by these findings, I develop a general-equilibrium model incorporating financial frictions and heterogeneity in expected growth rates among firms. The model is calibrated to match life-cycle patterns of capital and labour allocation that are informative about firm-level frictions. I find that a small group of high-growth-potential firms contributes significantly to the macroeconomy but is adversely affected by financial frictions. Removing borrowing constraints leads to a substantial reallocation of resources to these firms, and aggregate output and productivity increase. A model that overlooks high-growth-potential firms would predict smaller efficiency losses caused by financial frictions.
Learning and Selection in Venture Capital Financing, and the Firm Life Cycle
Working Paper, June 2025
Abstract: This paper studies the life cycle of young, risky companies and their financing decisions. I propose a model where entrepreneurs own projects of uncertain quality, and only learn about their underlying profitability by operating firms. Entrepreneurs may self-select into different financial regimes -- namely, venture capital or bank financing -- to access capital. Venture capitalists contribute to firms by adding differential learning and growth abilities not provided by more traditional financiers, but are costly to find and require a fraction of the stock of the company. I calibrate the model to match empirical moments of the venture capital industry in the United States. I find that high-risk entrepreneurs self-select into venture capital financing and outperform their non-venture-backed peers in terms of growth. I find that the higher learning ability of venture capitalists is important for firm selection into financial regimes, the distribution of rents, and the timing and number of initial public offerings.
Firm Financing, Frictions, and Trade (with José L. Groizard)
Elgar Encyclopedia of International Trade (forthcoming)