Misallocation of debt and aggregate productivity

Hwagyun Kim, Vipul Mathur, Jong Shin and Chetan Subramanian

Journal of Corporate Finance, 2023, vol. 83, issue C

Abstract: We propose an accounting framework that maps the dispersion of borrowing costs along the debt maturity structure to the misallocation of productive resources. Specifically, we decompose the effects of credit misallocation into two distinct channels: limited access to debt finance (the scale effect) and distortion in the composition of debt across maturities (the composition effect). Our estimates suggest that an efficient allocation of debt could increase TFP by approximately 14.4% in the US manufacturing sector, of which roughly 10% is attributable to the composition of debt. Reducing inefficiencies in the composition of debt would result in TFP losses due to access and composition of factor inputs being reduced by 9.7% and 0.4%, respectively.

Keywords: Debt finance; Debt maturity structure; Corporate term spread; Liquidity production; Resource misallocation; Productivity loss (search for similar items in EconPapers)
JEL-codes: G11 G31 G32 O16 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:83:y:2023:i:c:s0929119923001426

DOI: 10.1016/j.jcorpfin.2023.102493

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