Date(s) - 10/11/2019
3:00 pm - 4:30 pm
The Department of Economics Seminar Series for the Fall 2019 term continues Friday, 10/11/19 at 3:00 pm in Behavioral Sciences room 103. The seminars are free and open to everyone.
October 11th’s speaker is Assistant Professor Leila Davis from the Department of Economics at the University of Massachusetts Boston. Before UMB she was an Assistant Professor and Affiliate Faculty in International Politics and Economics at Middlebury College in Vermont from 2014-2018.
Davis earned her PhD from the University of Massachusetts Amherst in 2014. Her dissertation was titled: “The Financialization of the Nonfinancial Corporation in the Post-1970 U.S. Economy.” Her research and teaching fields include Macroeconomics and Monetary Theory.
Davis will be presenting her paper: The evolution of financial fragility: A quantile decomposition of firm balance sheets. Her paper studies the impact on firm fragility of systematic changes in firm balance sheets in the post-1980s era.
Abstract: The post-1980 period has seen sustained changes in the balance sheet of the average nonfinancial corporation in the U.S., but also important heterogeneity across firms. In particular, firms across the distribution have seen an increase in cash holdings and, while average indebtedness has remained stable, firms at the bottom 60% of the distribution have become less indebted. At first sight, these trends are puzzling, given that the post-1980 period has also seen a growing share of firms unable to generate sufficient cash flows to service their financial obligations (such that they are net borrowers). In this paper, we reconcile these trends by decomposing observed trends in firm balance sheets into two components: the contribution of within-firm changes in financial behavior, and the contribution of changes in the composition of firms in the corporate sector. Using a two-step quantile decomposition method, we find that the observed changes in balance sheets are driven by firms entering and exiting the corporate sector, rather than by the behavior of continuing firms. Furthermore, these compositional effects are particularly strong among more financially fragile firms. Our findings suggest that ‘churning’ and, in particular, changing IPO behavior, are key mechanisms through which changing financial norms have been realized after 1980 in the U.S. corporate sector.