Research

Working Papers

Crowding Out and Banking Crises

This paper studies the effect of government issuance on private issuance during banking crises using transaction-level bond and loan data from 66 countries between 1991 and 2017. Governments rarely issue loans, preferring to issue in bond markets. Firms, on the other hand, receive most of their financing from banks. During banking crises, as the supply of domestic loans decreases, firms switch to issuing bonds in domestic markets. Using a novel instrument based on maturing debt to overcome the potential endogeneity of government issuance, I find that firms must compete with the government for funds in the domestic bond market and are crowded out from this market as a result. This happens not only in developing countries, but in advanced countries as well. I also show that firms with the ability to tap foreign debt markets switch to these markets when crowding out occurs in domestic bond markets. Lastly, I show that more developed domestic bond markets mitigate, but do not eliminate, the degree to which crowding out occurs.

What Does Venture Capital Actually Finance? Scale and Structure around the World

with Santiago Reyes, Kianna Freeman, Jeremias Huber, and Paolo Mauro

[World Bank Working Paper]

Venture capital is widely viewed as financing knowledge-intensive, R&D-driven startups, but owing to data constraints, this view has been based largely on high-income economies. By taking a global perspective, this paper documents that what venture capital finances differs systematically across economies, varying with institutional and business conditions rather than following a single model. Using a new cross-country dataset that harmonizes firm-level venture capital records with equity issuance data for more than 150 economies, the data shows that VC markets differ across countries not only in scale but in kind. Outside high-income countries, rather than being concentrated in knowledge intangibles, venture capital tilts–at both the sector and firm levels–toward organizational intangibles such as distribution, logistics, and payments. Highlighting the unique features of venture capital, this pattern is absent from public equity markets, where sectoral composition is far more similar across income levels. An accounting decomposition separates venture capital depth into the rate at which firms enter the market and the funding each entrant attracts, and entry accounts for the largest cross-country gaps. Moreover, the business environment is associated with VC primarily through entry, linked both to the size of the market and to the composition of what venture capital finances, the latter through entry into knowledge-intensive sectors in particular.

Financial Fractures: Sovereign Borrowing and Private Access to International Capital Markets

with Graciela Kaminsky and Shiyi Wang

This paper studies whether surges in sovereign borrowing adversely affect the ability of corporations to tap international capital markets. Previous research documenting crowding out has concentrated on domestic markets, which are illiquid and segmented. In these constrained markets, government issuance crowds out corporate sector borrowing. In contrast, international markets are considered to be highly integrated across all countries and highly liquid. In this environment, government borrowing should not crowd out corporate issuance. However, this is not always the case. Occasionally, financial fractures appear, and panics ensue. We capture these periods of fractures, and test whether sovereign issuance constrains corporate sector access to international markets in periods when cracks appear.

Work in Progress

Cracks in the sovereign floor: When Corporate Yields Fall Below Government Rates

with Andreea Rotărescu

Geopolitical Shocks and International Financial Stability: What Can We Learn from Loan Syndicates’ Exposure to Russian Firms?

with Maria Olivero and Andreea Rotărescu