Erik P. Gilje
I use oil and natural gas shale discoveries as a natural experiment to identify whether local access to finance matters for economic outcomes. Shale discoveries lead to large unexpected personal wealth windfalls, which result in an exogenous increase in local bank deposits and a positive local credit supply shock. Using this shock I examine whether local credit supply influences economic outcomes and how local banking market structure affects the importance of credit supply. After a credit supply shock, the number of business establishments in industries more reliant on external finance increases 4.6% relative to those less reliant on external finance. This increase is more than five times higher in counties dominated by small banks relative to all other counties. After banking deregulation, the adoption of lending technology and increased securitization of loans, local credit supply still matters, especially in areas dominated by small banks.
“Do Public Firms Invest Differently from Private Firms? Taking Cues from the Natural Gas Industry” with Jerome P. Taillard, Working Paper
We exploit a unique dataset of onshore North American natural gas producers to study how private and public firms differ in investment behavior. We employ two distinct empirical strategies. First, we find that private firms are less sensitive to changes in natural gas prices, an exogenous measure that captures marginal q in this industry. Second, we use county-specific shale gas discoveries as a natural experiment and find that private firms react significantly less to a positive investment opportunity shock. These results are not driven by heterogeneity in product markets, pricing, firm size, location, or drilling costs. Financing constraints are a plausible explanation for our results. Our findings expand our understanding of the frictions that matter for real investments made by firms.
“Do Firms Engage in Risk Shifting? Empirical Evidence” Working Paper
I empirically test whether firms engage in risk-shifting in a setting where corporate investment risk measures are available in SEC disclosures. Contrary to what risk-shifting theory predicts, I find that firms reduce investment risk when leverage increases. In firm-level panel regressions I find that firms reduce the riskiness of capital expenditures by 23.4% when leverage is high. This reduction in risk taking is more prevalent among small firms. In a second test, I use a natural experiment with exogenous shocks to leverage. Consistent with the first test, I find no evidence that firms increase risk, and that small firms reduce risk. Concern regarding the financing of future investments is a plausible explanation for these results.