Firm Leverage and Regional Business Cycles

46 Pages Posted: 2 Jan 2019

See all articles by Xavier Giroud

Xavier Giroud

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Holger M. Mueller

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: November 2018

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.

Suggested Citation

Giroud, Xavier and Mueller, Holger M., Firm Leverage and Regional Business Cycles (November 2018). Available at SSRN: https://ssrn.com/abstract=3299565 or http://dx.doi.org/10.2139/ssrn.3299565

Xavier Giroud

Columbia University - Columbia Business School, Finance ( email )

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HOME PAGE: http://www.columbia.edu/~xg2285/

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Centre for Economic Policy Research (CEPR) ( email )

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Holger M. Mueller (Contact Author)

New York University (NYU) - Department of Finance ( email )

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HOME PAGE: http://www.stern.nyu.edu/~hmueller/

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI) ( email )

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Belgium

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