Young Firms' Financing Choices, Investment, and Growth (Job Market Paper)

This paper investigates the impact of financing choices among heterogeneous young firms on their future growth paths. Young firms' heterogeneity stems from firm owners' characteristics, (e.g., educational background and work experience). However, the relationship between firm heterogeneity and access to financing is less well known in the literature of firm dynamics. Using Kauffman Firm Survey data, I construct a firm life-cycle model with financing constraints that allows different types of firms to simultaneously choose multiple channels, including business loans, personal loans, and credit card borrowing. A key assumption in the model is the unlimited but costly borrowing from credit card channels. This paper uses the model to quantitatively evaluate each channel's role in young firms' long-run growth paths, I show that the credit card channel is essential for firms to maintain business activities, especially for small firms. When the unlimited borrowing assumption is removed, rather than borrowing up to the limit, many young firm owners will turn to self-financing and no longer take any form of debt. My model also tests young firms' response to the higher financing cost from the increasing concentration in the financial market. The simulation result indicates that in a specific scenario, a higher financing cost can push firms to reduce the share of borrowing from high-cost channels and better utilize the business loans for growth, resulting in a higher growth trajectory.

Can Catastrophic Long-Term Care Insurance Policies Increase Private Insurance Coverage and Reduce Medicaid Expenditure?

(with Wei Sun)     paper
Using an inter-temporal optimization model of long-term care insurance purchase decisions, we evaluate catastrophic long-term care insurance policies that cover the tail risk of long-term care costs at affordable premiums. Under our baseline model, we show theoretically that introducing catastrophic policies will induce 11 percent of middle-income men and 3 percent of middle-income women to initiate private insurance coverage. As a result, Medicaid costs will be reduced by 0.20 percent and 0.19 percent for men and women, respectively.