Abstract: The empirical investment literature studying the determinants of investment relies almost exclusively on truncated samples of publicly listed firms due to the lack of data on private firms. This truncation, however, is not random because listing is a choice for many firms, whereas others cannot list due to their characteristics. The ensuing endogenous truncation entails biased estimates. We develop a methodology that corrects for the bias. The bias-corrected results lend strong support for the q-theory: the investment-cash flow sensitivity disappears and the relation between investment and q nearly quadruples. Our econometric framework is also applicable in other economic contexts.
Discussant: Nathalie Moyen, University of Colorado-Boulder
Abstract: Pay-as-you-go (PAYGo) financing is a novel financial contract that has recently be- come a popular form of credit, especially in low-and-middle-income countries (LMICs). PAYGo financing relies on technology that enables the lender to cheaply and remotely disable the flow benefits of collateral when the borrower misses payments. This paper quantifies the welfare implications of PAYGo financing. We develop a dynamic struc- tural model of consumers and estimate the model using a multi-arm, large scale pricing experiment conducted by a fintech lender that offers PAYGo financing for smartphones. We find that the welfare gain from access to PAYGo financing is equivalent to a 5.8% increase in income, while remaining highly profitable for the lender. The welfare gains are larger for low risk and intermediate income consumers. Under reasonable assump- tions about the repossession technology, PAYGo financing consistently outperforms traditional secured loans. For riskier consumers, an intermediate degree of lockout can be welfare maximizing.
Discussant: Sasha Indarte, University of Pennsylvania
Abstract: Firms with ample financial slack are unconstrained... or are they? In a field experiment that randomly expands debt capacity on business credit lines, treated small-and-medium enterprises (SMEs) draw down 35 cents on the dollar of expanded debt capacity in the short-run and 55 cents in the long-run despite having debt levels far below their borrowing limit before the intervention. SMEs direct new borrowing to financing investment gradually over time and do not exhibit a measurable impact on delinquencies. Heterogeneity analysis by the risk of being at the credit line limit supports the SME motive to preserve financial flexibility.
