I analyze the impact of the formation of universal banks on corporate investment by looking at the gradual dismantling of the Glass-Steagall Act’s separation between commercial and investment banking. Using a sample of US firms and their relationship banks, I show that firms curtail debt issuance and investment after positive shocks to the underwriting capacity of their main bank. This result is driven by unrated firms and is strongest immediately after a shock. These findings suggest that universal banks may pay more attention to large firms providing more underwriting opportunities while exacerbating financial constraints of opaque firms, in line with a shift to a banking model based on transactional lending.

Recent financial crises have prompted the interest in understanding how banking globalization interacts with domestic institutions in shaping foreign shocks’ transmission. This paper uses regional banking data from Brazil to show that a foreign funding shock to banks negatively affects lending by their regional branches. This effect increases in the presence of frictions in internal capital markets, which affect branches’ capacity to access funding from other regions via intra-bank linkages. These results also matter on an aggregate level, as municipality-level credit and job flows drop in exposed regions. Policies aiming to reduce the fragmented structure of regional banking markets could moderate the propagation of foreign shocks.

There is an ongoing debate about the economic effects of individualism. We establish that individualism leads to better educational and labor market outcomes. Using data from the largest international adult skill assessment, we identify the effects of individualism by exploiting variation between migrants at the origin country, origin language, and person level. Migrants from more individualistic cultures have higher cognitive skills and larger skill gains over time. They also invest more in their skills over the life-cycle, as they acquire more years of schooling and are more likely to participate in adult education activities. In fact, individualism is more important in explaining adult skill formation than any other cultural trait that has been emphasized in previous literature. In the labor market, more individualistic migrants earn higher wages and are less often unemployed. We show that our results cannot be explained by selective migration or omitted origin-country variables.

How important is mastering information and communication technology (ICT) on modern labor markets? We answer this question with unique data on ICT skills tested in 19 countries. Our two instrumental-variable models exploit technologically induced variation in broadband Internet availability that gives rise to variation in ICT skills across countries and German municipalities. We find statistically and economically significant returns to ICT skills. For instance, an increase in ICT skills similar to the gap between an average-performing and a top-performing country raises earnings by about 8 percent. One mechanism driving positive returns is selection into occupations with high abstract task content.

This paper examines the effect of going public on firm-level employment. To establish a causal effect, we employ a novel data set of private firms to investigate employment growth in IPO firms relative to a group of firms that file for an IPO but subsequently withdraw their offering. We find that employment increases significantly after going public, and the increase is more pronounced in industries with requirements for highly skilled labor and greater dependence on external finance. Improved ability to undertake acquisitions and a strategic shift toward commercialization, rather than agency problems, explain employment growth. Overall, these results highlight the importance of going public for firms' employment policies.

My dissertation consists of three studies, all viewing aggregate productivity as driven by the individual decisions of firms and the inventors that work for them. I use microeconometric analysis to study why firms innovate and economic theory to link these decisions to macroeconomic outcomes. The first paper in this dissertation studies how German manufacturing firms adjust their productivity in response to an increase in competition from foreign markets. German firms only increase their productivity if their new competitors come from other industrialized economies. This productivity increase is not driven by innovation. Instead, firms cut input expenses and prices while maintaining their output. The second paper traces the matching decisions of firms and inventors on the labor markets of developed economies. It adapts empirical techniques used in labor economics to this special segment of the labor market and shows that assortative matching has been increasing from 1974 to 2012: High quality inventors go to high quality firms more often than was the case in previous decades. This cannot be explained by changes in the patent invention function: The productivity of a match between a firm and an inventor of constant quality remains roughly unchanged. The third paper develops an endogenous growth model with inventor labor markets and two types of innovation: disruptive inventions that change the underlying technology of firms’ products and incremental improvements over existing products. Firms acquire expertise in certain technologies by hiring the inventors who are experts in these fields. This gives them a strong incentive to prevent disruptive inventions: If the underlying technology changes, their investment in these inventors becomes worthless. Large firms inhibit aggregate growth by poaching inventors from firms engaged in disruptive innovation.

We argue that wage inertia plays a pivotal role in allowing empirically plausible variants of the standard search and matching model to account for the large countercyclical response of unemployment to shocks.

Human beings do not act in isolation. This particularly holds for economic systems in which workers are employed at firms. In one of the seminal papers in economics, Coase (1937) identifies transaction costs to be the prime economic reason why firms are formed to organize production, and, consequently, transaction costs also explain why workers are employed at firms. At first glance, this appears to be a subtle detail on the organization of economic activity. It has, however, a huge impact on individuals, as this subtle detail also is the reason why the provision of their workforce in the economy is performed through employment at firms.

Equity crowdfunding (ECF) has potential benefits that might be attractive to high-quality entrepreneurs, including fast access to a large pool of investors and obtaining feedback from the market. However, there are potential costs associated with ECF due to early public disclosure of entrepreneurial activities, communication costs with large pools of investors, and equity dilution that could discourage future equity investors; these costs suggest that ECF attracts low-quality entrepreneurs. In this paper, we hypothesize that entrepreneurs tied to more risky banks are more likely to be low-quality entrepreneurs and thus are more likely to use ECF. A large sample of ECF campaigns in Germany shows strong evidence that connections to distressed banks push entrepreneurs to use ECF. We find some evidence, albeit less robust, that entrepreneurs who can access other forms of equity are less likely to use ECF. Finally, the data indicate that entrepreneurs who access ECF are more likely to fail.

Measuring innovation is challenging both for researchers and for national statisticians, and it is increasingly important in light of the ongoing digital revolution. National accounts and many other economic statistics were designed before the emergence of the digital economy and the growing importance of intangible capital. They do not yet fully capture the wide range of innovative activity that is observed in modern economies.
This volume examines how to measure innovation, track its effects on economic activity and prices, and understand how it has changed the structure of production processes, labor markets, and organizational form and operation in business. The contributors explore new approaches to, and data sources for, measurement—such as collecting data for a particular innovation as opposed to a firm, and the use of trademarks for tracking innovation. They also consider the connections between university-based R&D and business startups, and the potential impacts of innovation on income distribution.
The research suggests potential strategies for expanding current measurement frameworks to better capture innovative activity, such as more detailed tracking of global value chains to identify innovation across time and space, and expanding the measurement of the GDP impacts of innovation in fields such as consumer content delivery and cloud computing.