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

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...

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Bibliographic Details
Published in:The Journal of finance (New York) 2018-12, Vol.73 (6), p.2787-2836
Main Authors: BAI, JOHN (JIANQIU), CARVALHO, DANIEL, PHILLIPS, GORDON M.
Format: Article
Language:English
Subjects:
Aggregate industry
Capital
Companies
Credit
Deregulation
Employment
Labor
Markets
Productivity
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Summary: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 toward 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.
ISSN:0022-1082
1540-6261
DOI:10.1111/jofi.12726