Thesis title: Essays on Firm Heterogeneity and Macroeconomic Policies
This thesis revolves around the empirical investigation of some key macroeconomic policy and corporate finance questions, thought the lens of the BvD Orbis global database, which is one of the most popular and comprehensive granular firm-level dataset. The analysis is structured into a short background followed by three main chapters.
In the background, I highlight how research in macroeconomic and finance based on firm level data is becoming increasingly popular and discuss some relevant features of the Orbis dataset. In order to test the validity of the Orbis dataset, I construct a nationally representative firm-level panel data for eight European countries (Austria, Belgium, Germany, Spain, France,
Italy, Netherlands and Portugal) and compare the summary statistics on total turnover and employment to aggregate official statistics (SBS Eurostat data). The exercise predicts the
following main results. First of all, micro fi rm-level data account for more than 50% and around 40% of the aggregate output and employment, respectively. Moreover, the treatment
of data produces a stable and reliable coverage across the years. Second, I find that SMEs account for more than half of aggregate output and around 40% of aggregate employment in
the eight European countries considered. The large importance of SMEs supports my decision to include this group of companies in the thesis. Third, employment and turnover growth in the fi rm-level panel closely follows the macroeconomic trends. These results can clearly reassure me that Orbis dataset, if processed correctly, is a good source of companies' financial data and can be certainly used to conduct empirical macroeconomic analysis.
The first chapter, entitled "Monetary Policy, Investment and Firm Heterogeneity" and co-authored with Annalisa Ferrando and Philip Vermeulen, contains a new research that uncovers heterogeneous effects of the euro area monetary policy on firm investment. The analysis traces the response of annual investment of more than 1 million firms in Germany, France, Italy and Spain to both conventional and unconventional monetary policy shocks over the period 2000-2016. It shows that euro area firms react differently depending on their age and the industry they operate in: the reaction of young firms and fi rms that produce durables is stronger than average. One year after a 10 basis points upward surprise in the three month EONIA swap rate, the investment rate for the average firm drops by 3.4 percentage points. This compares to a reduction of 5.0 percentage points for young firms (below 10 years of age) in the durables sector and a reduction of only 2.7 percentage points for old firms (above 20 years of age) that produce services. The potential reason why these effects are so large is that the sample of firms used is mainly composed of small, unlisted companies, which can be expected to be more sensitive to changes in interest rates than large, listed firms. This heterogeneity is consistent with the co-existence of two transmission channels of monetary policy. On the one hand, the interest rate channel a effects demand of durable goods more than of services, which then gets passed on to investment demand of the producers of those goods. On the other hand, young firms are more likely to face financing constraints so that their stronger reaction can be explained by the balance sheet channel of monetary policy (via collateral values and the user cost of capital). The results can also explain differential transmission of monetary policy across euro area countries, depending on their respective industrial structure.
In the second chapter entitled "Macroprudential policies, corporate debt and investment: the case of LTV ratio limits", I assess how LTV ratio caps on mortgages - a speci c asset-based macroprudential policy - affect fi rms' capital structure, investment plans and employment. I use a unique and comprehensive firm-level panel dataset for fi ve European countries (Finland,
Ireland, Estonia, Latvia and Slovakia) that have recently introduced the LTV ratio caps. In the analysis, I highlight the role of the collateral channel in transmitting real estate price shocks
to the corporate sector. Speci fically, a decline in the real estate prices generates losses in the value of assets that corporates can use as collateral, hence reduces their ability to borrow from financial institutions, make investments and create jobs. I provide evidence of this mechanism, by showing a signi ficant collateral effect on firms' debt choices after the implementation of LTV ratio caps in the selected countries. Indeed, a LTV shock generates a decrease of around 1.1 percentage points in secured borrowing for fi rms with high collateral value pre-LTV compared to firms with low collateral value. On the contrary, unsecured debt (i.e. trade credit) increases by 0.8 percentage points, documenting a substitution effect between secured and unsecured debt after the implementation of the LTV caps. These results suggest that macroprudential policies targeting the household sector might have unintended effects on corporates. Moreover, through debt adjustments, companies also change their investment and hiring plans. The LTV shock produces a decrease of around 23 percentage points in investments for firms with high value of collateral pre-LTV compared to companies with lower value of collateral. This quite strong result reflects the composition of our sample that is mainly dominated by SMEs and young companies, which make large use of secured debt. The chapter also documents a signi ficant degree of heterogeneity in the effect of LTV caps on firms. First of all, young companies, which are typically more fragile and credit constrained, are affected more than others. Similarly, among young companies, the so called zombies (i.e. the less profi table) react more to the implementation of LTV caps. This latter result supports the idea that macroprudential policies are able to enhance financial stability, by restricting the leverage of the riskiest agents.
The third chapter, entitled "Financing and obstacles for high growth enterprises: the European case" and co-authored with Annalisa Ferrando and Rozalia Pal, investigates the links
between alternative growth phases of firms and barriers to financing and investment, using firm-level information for a representative sample of EU companies. We propose a novel classification of corporates: high growth (HGEs), stable and declining enterprises. We find that during the phase of high growth, firms are on average more financially constrained. To match
their needs for external finance, HGEs are more likely to apply for equity financing. Furthermore, we identify firms with high growth potential. Using the EIB Group Survey on Investment
and Investment Finance (EIBIS), we investigate the barriers to investment activities faced by actual and potential HGEs. Our findings suggest that the most stringent obstacles for actual
HGEs are the availability of skilled staff and business regulations, while potential HGEs are blocked by uncertainty about the future.