Publications
Publications
100 Years of Rising Corporate Concentration
(with Spencer Kwon and Yueran Ma)
American Economic Review, 2024, Vol. 114 (7), pp. 2111--2140
We collect data on the size distribution of U.S. businesses for 100 years, and use these data to estimate the concentration of production (e.g., asset share or sales share of top businesses). The data show that concentration has increased persistently over the past century. Rising concentration was stronger in manufacturing and mining before the 1970s, and stronger in services, retail, and wholesale after the 1970s. The results are robust to different measurement methods and consistent across different historical sources. Our findings suggest that large firms have become more important in the U.S. economy for a long period of time.
[Data: businessconcentration.com] [BFI Brief] [ProMarket Summary] [Harvard Law School Forum on Corporate Governance]
Monetary Policy and Innovation
(with Yueran Ma)
Prepared for the Jackson Hole Economic Policy Symposium 2023.
We document that monetary policy has a substantial impact on innovation activities. After a tightening shock of 100 basis points, research and development (R&D) spending, venture capital (VC) investment, patenting in important technologies, as well as a patent-based aggregate innovation index decline in the following 2 to 4 years. Our findings suggest that monetary policy may affect the productive capacity of the economy in the longer term, in addition to the well-recognized near-term effects on economic outcomes.
The Big Bang: Stock Market Capitalization in the Long Run
(with Dmitry Kuvshinov)
Journal of Financial Economics, 2022, Vol. 145 (2), pp. 527-552
We study trends and drivers of long-run stock market growth in 17 advanced economies. Between 1870 and the 1980s, stock market capitalization grew in line with GDP. But over subsequent decades, an unprecedented expansion saw market cap to GDP ratios triple and remain persistently high. While most historical stock market growth was driven by issuances, this recent expansion was fueled by rising equity prices. We show that the key driver of this structural break was a profit shift towards listed firms, with listed firm profit shares in both GDP and capital income doubling to reach their highest levels in 146 years.
[Data: Excel, Stata] [Replication Files] [ProMarket Summary] [VOX EU]
Sovereigns Going Bust: Estimating the Cost of Default
(with Dmitry Kuvshinov)
European Economic Review, 2019, Vol. 119, pp. 1-21.
What is the cost of sovereign default, and what makes default costly? This paper uses a novel econometric method – combining local projections and propensity score weighting as in Jordà and Taylor (2016) – to study these questions. We find that default generates a long-lasting output cost – 2.7% of GDP on impact and 3.7% at peak after five years – but in the longer term, economic activity recovers. Our findings suggest that financial autarky and sovereign-banking spillovers play a key role in generating the cost of default.
Superstar Firms through the Generations
(with Yueran Ma, Benjamin Pugsley and Haomin Qin)
We present new facts about the largest American companies over the past century. In manufacturing, top firms in the 1910s, 1950s, and 2010s predominantly date back to around 1900. Even as this special generation persists, turnover among top firms has been substantial. In contrast, in retail and wholesale, we do not observe a special generation among top firms. We show in a model of firm dynamics that a special generation can arise from an industrial revolution, through the adoption of a scalable technology and learning-by-doing. Top firm turnover is matched by standard idiosyncratic productivity shocks. Time-varying market size growth rates or entry costs are not sufficient to explain the facts. Among retailers and wholesalers, learning appears absent, so a special generation would be harder to sustain. Our results highlight the potential for lasting nonstationarity among the dynamics of top firms, which can result from the long echoes of technological change.
Business Concentration around the World: 1900—2020
(with Yueran Ma and Mengdi Zhang)
We collect long-run data on the firm size distribution in ten market-based economies in Asia, Europe, North America, and Oceania, where we can obtain comprehensive coverage of the population of companies. Around the world, we observe prevalent increases in the concentration of sales and net income over the past century, in the aggregate and at the industry level. Meanwhile, employment concentration has been relatively stable over the long run. The evidence shows that rising dominance of large firms is a pervasive phenomenon, not limited to the recent decades or the United States, and they achieve a greater scale with relatively few workers.
Survival of the Biggest: Large Banks and Crises since 1870
(with Matthew Baron and Moritz Schularick)
This paper studies a newly compiled data set of annual balance sheets of more than 11,000 commercial banks across 17 advanced economies since 1870. The new data expose the central role of large banks for credit cycles and financial instability throughout modern financial history. Large banks account for a large and growing share of asset growth during credit booms, take more risks, contract lending more in crises, and suffer higher losses. Yet despite their worse performance, large banks are less likely to fail during crises and even tend to gain market share.
The Shifts and the Shocks: Bank Risk, Leverage, and the Macroeconomy
(with Dmitry Kuvshinov and Björn Richter)
We show that across advanced economies, bank asset risk declined materially between 1870 and 2016. But this trend was accompanied by large increases in leverage, which meant that bank equity risk increased. Moreover, losses on bank assets have become to be associated with increasingly large output gaps. We show that this higher predictive power is linked to the secular increases in bank leverage.
We show that increasing bank profitability is associated with higher medium-term crisis risk and declining GDP growth in a long-run panel of advanced economies. To explain these findings, we link bank profitability to the credit cycle. An increase in profitability of the banking sector predicts rising credit-to-GDP ratios and the start of a credit boom. We decompose bank profitability into its sources and uses to study the channels behind this “profit-credit cycle” in more detail. The analysis supports a supply side view of the credit cycle and aligns with recent behavioral credit cycle models.
(with Dmitry Kuvshinov) [CEPR Discussion Paper]
Across 17 advanced economies, the expected risky return has been in steady long-run decline, but its trend is markedly different from that in the safe rate. As a consequence, the ex ante risk premium exhibits large secular movements, and risk premia and safe rates are strongly negatively correlated. We provide evidence linking these differential risky and safe rate trends to secular variation in macroeconomic risk.
What is the effect of monetary policy on bank profitability? My analysis reveals one key finding: Banking sector spreads increase when monetary policy tightens, yet banking sector profits fall. The disconnect between spreads and profits is driven by a sharp increase in loan losses and a contraction in credit growth. I also show that the profitability effect of policy rate hikes is highly state dependent. It is increasing in the share of mortgage credit in the economy and decreasing in the share of deposit finance in bank liabilities.