Nicolas Serrano-Velarde

Back to Basics: Basic Research Spillovers, Innovation Policy and Growth

This paper introduces a model of endogenous growth through basic and applied research. Basic research differs from applied research in the nature and the magnitude of the generated spillovers. We propose a novel way of empirically identifying these spillovers and embed them in a general equilibrium framework with private firms and a public research sector. After characterizing the equilibrium, we estimate our model using micro-level data on research expenditures by French firms. Our key finding is that standard R&D policies can accentuate the dynamic misallocation in the economy. We also find a strong complementarity between the property rights of basic research and the optimal funding of public research.

The Causal Effect of Bankruptcy Law on the Cost of Finance

We exploit the staggered nature of the Italian bankruptcy law reform of 2005-2006 to disentangle the distinct causal impact of both reorganization and liquidation procedures in bankruptcy on firms cost of loan financing. Using a unique loan-level dataset covering the universe of firm funding contracts we present two major findings: first, that the introduction of a reorganization procedure increased the interest rates on loan financing; second, that the reform that accelerated the liquidation procedure not only decreased firms cost of finance but also relaxed credit constraints.

Investment Dynamics in Italy: Financing Constraints, Demand and Uncertainty

In this paper we describe the investment behaviour of manufacturing firms in Italy between 1995 and 2013 and we investigate the most important factors leading to the decline in investment since 2008. We estimate an error correction model for investment using information on firms demand expectations, uncertainty, and credit constraints, based on the Bank of Italy’s Survey of Industrial and Service Firms. Our results suggest that the fall in the expected growth rate of real sales played an important role in quantitative terms, and that the 2008 demand shock may explain a long period of weak investment. We also find that credit constraints have a significant impact at the firm level, but less so in aggregate terms. Finally higher uncertainty does not seem to have played a significant role in explaining investment dynamics during the crisis.

Marketplace Lending, Information Aggregation, and Liquidity

“Fintech” innovations are redefining the boundaries between financial intermediaries and markets. In this paper, we study the recent experience of Funding Circle, a leading UK online marketplace that directly matches retail investors with small and medium size corporate borrowers. Recently, Funding Circle replaced its auction system, where both prices and loan allocations were determined by the market, with a posted price system, where only the allocation is determined by the market. An important focus of our analysis is the tradeoff between the information aggregation of auctions and their susceptibility to liquidity shortages. We show that auctions generate a price discovery process that reveals information that can improve the prediction of default events. At the same time, increasing difficulties in matching changes in the demand for loans to the supply of funds has led to a fall in the precision of that information over the sample period, and an increase in the volatility of interest rates. We believe this explains the eventual switch to posted prices.