The Impact of Bank Credit on Labor Reallocation and Aggregate Industry Productivity

75 Pages Posted: 8 Feb 2015 Last revised: 10 Dec 2017

See all articles by John (Jianqiu) Bai

John (Jianqiu) Bai

Northeastern University - D'Amore-McKim School of Business

Daniel R. Carvalho

Indiana University - Kelley School of Business

Gordon M. Phillips

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: November 21, 2017

Abstract

We provide evidence that the deregulation of U.S. state banking markets leads to a significant increase in the relative employment and capital growth of local firms with higher productivity and that this effect is concentrated among young firms. Using financial data for a broad range of firms, our analysis suggests that this effect is driven by a shift in the composition of local bank credit supply towards more productive firms. We estimate that this effect translates into economically important gains in aggregate industry productivity and that changes in the allocation of labor play a central role in driving these gains.

Keywords: Financing Frictions, Aggregate Productivity, Resource Reallocation

JEL Classification: G30, G21, L11, L16, G23

Suggested Citation

Bai, John (Jianqiu) and Carvalho, Daniel R. and Phillips, Gordon M., The Impact of Bank Credit on Labor Reallocation and Aggregate Industry Productivity (November 21, 2017). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2561588 or http://dx.doi.org/10.2139/ssrn.2561588

John (Jianqiu) Bai

Northeastern University - D'Amore-McKim School of Business ( email )

Boston, MA 02115
United States

Daniel R. Carvalho

Indiana University - Kelley School of Business ( email )

Bloomington, IN 47405
United States

Gordon M. Phillips (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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