Firm Leverage and Regional Business Cycles

Holger Mueller and Xavier Giroud

No 13355, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper shows that buildups in firm leverage predict subsequent declines in aggregate regional employment. Using confidential establishment-level data from the U.S. Census Bureau, we exploit regional heterogeneity in leverage buildups by large U.S. publicly listed firms, which are widely spread across U.S. regions. For a given region, our results show that increases in firms' borrowing are associated with "boom-bust" cycles: employment grows in the short run but declines in the medium run. Across regions, our results imply that regions with larger buildups in firm leverage exhibit stronger short-run growth, but also stronger medium-run declines, in aggregate regional employment. We obtain similar results if we condition on national recessions-regions with larger buildups in firm leverage prior to a recession experience larger employment losses during the recession. When comparing regional firm and household leverage growth, we find qualitatively similar patterns for both. Finally, we find that regions whose firm leverage growth comoves more strongly also exhibit stronger comovement in their regional business cycles.

Keywords: Firm leverage; Business cycles (search for similar items in EconPapers)
JEL-codes: E24 E32 G32 (search for similar items in EconPapers)
Date: 2018-12
New Economics Papers: this item is included in nep-bec, nep-lma, nep-mac and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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