Does Finance Flow to High Productivity Firms?

49 Pages Posted: 26 Dec 2018 Last revised: 10 May 2019

See all articles by Murray Z. Frank

Murray Z. Frank

University of Minnesota

Keer Yang

University of Minnesota - Twin Cities

Date Written: May 7, 2019

Abstract

This paper studies the impact of productivity on the flow of financial resources to and from firms. To do this we use machine learning methods (Lasso, XGBoost) to derive a new measure of firm productivity using standard corporate accounts. Output is sales revenue and we find that the key inputs are i) cost of goods sold, ii) selling general and administrative expenses, iii) total assets. Empirically finance typically flows away from high productivity firms. We provide a model to explain this evidenced based on the interactions between investors and firms, in response to transitory
productivity shocks.

Keywords: productivity, capital structure, financing constraints, machine learning

JEL Classification: D24, E23, G32

Suggested Citation

Frank, Murray Z. and Yang, Keer, Does Finance Flow to High Productivity Firms? (May 7, 2019). Available at SSRN: https://ssrn.com/abstract=3295140 or http://dx.doi.org/10.2139/ssrn.3295140

Murray Z. Frank (Contact Author)

University of Minnesota ( email )

Carlson School of Management
321 19th Avenue South
Minneapolis, MN 55455
United States
612-625-5678 (Phone)

Keer Yang

University of Minnesota - Twin Cities ( email )

Carlson School of Management
321 19th Avenue South
Minneapolis, MN 55454
United States

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