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    Financing time frictions and macroeconomic outcomes

    Samiri, Issam (2021) Financing time frictions and macroeconomic outcomes. PhD thesis, Birkbeck, University of London.

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    Abstract

    This thesis considers several frictions related to the uncertainty firms face when they raise financing to fund future production projects. Following shocks to factors affecting the firm's profitability between the financing stage and the spending stage, the firm's managers may choose to spend less than the amount decided upon at the time of financing (underspending mechanism). Or, if the firm's revenues do not cover the amount due to debtors as a result of the shock, the firm might decide to default on existing debt obligation (endogenous default mechanism). Chapter 2 studies the underspending mechanism in the context of a Real Business Cycle model. This study is then extended to the case of an economy with multiple industries linked through an input-output network (chapter 3). Chapter 4 provides firm level empirical evidence to the underspending mechanism studied in chapter 2. This is achieved by linking some of the firm's growth indicators - firm level total factor productivity in particular - to the equity holders' cash rewards. The theoretical study of the underspending mechanism, links underspending to the level of shocks experienced by the economy and the cost of servicing current debt. Simulation results illustrate the asymmetric effect of underspending and the role it plays in worsening the lows of the business cycle. The aggregation results of chapter 3 prove that the underspending effects remain significant in economies with large number of industries affected by independent shocks, if the provision of intermediary goods is dominated by a small number of industries. Chapter 5 is dedicated to modelling endogenous defaults in an RBC set-up. This chapter presents a model able to endogenously generate countercyclical default rates and credit spreads in line with empirical experience, a feature that is lacking in popular financial acceleration general equilibrium models.

    Metadata

    Item Type: Thesis
    Copyright Holders: The copyright of this thesis rests with the author, who asserts his/her right to be known as such according to the Copyright Designs and Patents Act 1988. No dealing with the thesis contrary to the copyright or moral rights of the author is permitted.
    Depositing User: Acquisitions And Metadata
    Date Deposited: 06 Dec 2021 16:53
    Last Modified: 06 Dec 2021 16:54
    URI: https://eprints.bbk.ac.uk/id/eprint/46884

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