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Finance, Managerial Inputs, and Misallocation

Author

Listed:
  • Chaoran Chen
  • Ashique Habib
  • Xiaodong Zhu

Abstract

In standard macrofinance models, financial constraints mainly affect small or young firms but not large or old ones due to the self-financing mechanism, and the dispersion of marginal revenue product of capital (MRPK) of a firm cohort is less persistent than in the data. We extend a standard model by allowing firms to hire managers, and large firms hire disproportionately more managers, consistent with data. In our model, financial constraints and the dispersion of MRPK persist, and even large firms are likely to be constrained. The productivity loss from financial frictions is also substantially amplified.

Suggested Citation

  • Chaoran Chen & Ashique Habib & Xiaodong Zhu, 2023. "Finance, Managerial Inputs, and Misallocation," American Economic Review: Insights, American Economic Association, vol. 5(3), pages 409-426, September.
    • Handle: RePEc:aea:aerins:v:5:y:2023:i:3:p:409-26
    DOI: 10.1257/aeri.20220285
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    Cited by:

    1. Shujiang Cao & Shutao Cao, 2025. "Worker Quality, Matching and Productivity Slowdown," Papers 2509.00516, arXiv.org.
    2. Luo, Haotian, 2025. "Does smart city construction exacerbate capital misallocation? Spatial spillovers, digital transformation, and robotics application," Structural Change and Economic Dynamics, Elsevier, vol. 73(C), pages 328-344.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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