Essays on Firm Financing, Investment, and Growth

This dissertation studies the relationship between firm financing, investment, and growth. Chapter 1 makes use of a unique dataset that combines ownership data, Census Bureau data, and patenting data to study whether firms held by owners with more diversified business interests engage in more growth-enhancing risky innovation. I document that higher owner diversification leads to riskier innovation, after taking into account firm life cycle characteristics, access to finance, other features of ownership structure, and inherent firm and owner characteristics. I also provide evidence that diversification matters at the sector level, with sectors characterized by higher diversification exhibiting higher risky innovation, revenue, volatility, and growth. I present a stylized model that rationalizes these empirical findings. Chapter 2 studies the financial leverage of U.S. firms over their life-cycle and the implications of leverage for firm growth and response to shocks using a new dataset that combines private firms' balance sheets with Census Bureau data. We show that firm age and size are good predictors of leverage for private firms but not for publicly-listed ones. Using the Great Recession as a shock to financial conditions, we show that during the Great Recession leverage declines for private, but not public firms. We also provide evidence that private firms' growth is positively associated with leverage, while public firms' growth is not. Chapter 3 explores the extent to which interest rate fluctuations during sudden stops contribute to resource misallocation and explain the sharp decline in productivity observed during these episodes. Using firm-level data from Chile, I show evidence of rising misallocation during the 1998 sudden stop and evidence of hiring and investment frictions that could trigger this rising dispersion and subsequent decline in productivity. I then study the contribution of interest rate level and volatility shocks to this rise in misallocation using a small open economy model featuring heterogeneous firms that are subject to non-convex capital and labor adjustment frictions and calibrated using firm-level data from Chile. The model is qualitatively consistent with the rise in dispersion of marginal products and the decline in productivity observed during the sudden stop crisis