Hostname: page-component-8448b6f56d-jr42d Total loading time: 0 Render date: 2024-04-18T04:06:40.217Z Has data issue: false hasContentIssue false
  • English
  • Français

Finance in the New U.S. Economy: Local Finance and Service Job Growth in the Post-industrial Economy

Published online by Cambridge University Press:  16 April 2021

Elizabeth A. Berger Open the ORCID record for Elizabeth A. Berger [Opens in a new window]
Elizabeth A. Berger*
Affiliation:
Cornell University Johnson Graduate School of Management
*
eberger@uh.edu (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

I examine whether local bank finance facilitated the transition to a service-based economy in the U.S. I identify a causal role for local finance in service job creation. I use county-level changes to alcohol laws as demand shocks to service employers across a subsample of U.S. counties. Counties with more local finance experience more service job creation. This leads to labor market transitions that reflect shifts in the broader economy. Information asymmetry and collateral constraints connect local finance to service sector employment. The findings identify a unique role for local finance in the evolution to a postindustrial service-based economy.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 5 , August 2022 , pp. 1987 - 2021
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

I thank an anonymous referee, Alex Butler, Gustavo Grullon, Jarrad Harford (the editor), Natalia Sizova, and James Weston. In addition, I am grateful for helpful comments and suggestions by Kerry Back, Murillo Campello, David De Angelis, Andrew Karolyi, Alberto Teguia, and Morad Zekhnini; seminar participants at the University of Nebraska–Lincoln, Fordham University, Brandeis University, Washington University in St. Louis, Southern Methodist University, Emory University, Cornell University, the University of Miami, the University of Utah, the University of Virginia, the University of Kentucky, Michigan State University, the Rice University Student Brownbag Series, and the Rice University Faculty Seminar Series; and participants at the 2016 Labor and Finance Conference, 2017 SFS Cavalcade, and 2017 European Finance Association.

References

Adelino, M.; Ma, S.; and Robinson, D. T.. “Firm Age, Investment Opportunities, and Job Creation.” Journal of Finance, 72 (2017), 999–1038.CrossRefGoogle Scholar
Adelino, M.; Schoar, A.; and Severino, F.. “House Prices, Collateral, and Self-Employment.” Journal of Financial Economics, 117 (2015), 288–306.CrossRefGoogle Scholar
Ashcraft, A. B. “Are Banks Really Special? New Evidence from the FDIC-Induced Failure of Healthy Banks.” American Economic Review, 95 (2005), 1712–1730.CrossRefGoogle Scholar
Autor, D. H. “The ‘Task Approach’ to Labor Markets: An Overview.” National Bureau of Economic Research, No. w18711 (2013).CrossRefGoogle Scholar
Autor, D. H., and Dorn, D.. “The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market.” American Economic Review, 103 (2013), 1553–1597.CrossRefGoogle Scholar
Autor, D. H.; Levy, F.; and Murnane, R. J.. “The Skill Content of Recent Technological Change: An Empirical Exploration.” Quarterly Journal of Economics, 118 (2003), 1279–1333.CrossRefGoogle Scholar
Ayyagari, M.; Demirgüç-Kunt, A.; and Maksimovic, V.. “Firm Innovation in Emerging Markets: The Role of Finance, Governance, and Competition.” Journal of Financial and Quantitative Analysis, 46 (2011), 1545–1580.CrossRefGoogle Scholar
Beaudry, P.; Doms, M.; and Lewis, E.. “Should the Personal Computer Be Considered a Technological Revolution? Evidence from US Metropolitan Areas.” Journal of Political Economy, 118 (2010), 988–1036.CrossRefGoogle Scholar
Beck, T.; Demirgüç-Kunt, A.; Laeven, L.; and Maksimovic, V.. “The Determinants of Financing Obstacles.” Journal of International Money and Finance, 25 (2006), 932–952.CrossRefGoogle Scholar
Beck, T.; Demirgüç-Kunt, A.; and Maksimovic, V.. “The Influence of Financial and Legal Institutions on Firm Size.” Journal of Banking and Finance, 30 (2006), 2995–3015.CrossRefGoogle Scholar
Beck, T.; Demirgüç-Kunt, A.; and Maksimovic, V.. “Financing Patterns around the World: Are Small Firms Different?” Journal of Financial Economics, 89 (2008), 467–487.CrossRefGoogle Scholar
Becker, B. “Geographical Segmentation of US Capital Markets.” Journal of Financial Economics, 85 (2007), 151–178.CrossRefGoogle Scholar
Berger, A. N.; Miller, N. H.; Petersen, M. A.; Rajan, R. G.; and Stein, J. C.. “Does Function Follow Organizational Form? Evidence from the Lending Practices of Large and Small Banks.” Journal of Financial Economics, 76 (2005), 237–269.CrossRefGoogle Scholar
Berger, A. N., and Roman, R. A.. “Did Saving Wall Street Really Save Main Street? The Real Effects of TARP on Local Economic Conditions.” Journal of Financial and Quantitative Analysis, 52 (2017), 1827–1867.CrossRefGoogle Scholar
Bernstein, S., and Sheen, A.. “The Operational Consequences of Private Equity Buyouts: Evidence from the Restaurant Industry.” Review of Financial Studies, 29 (2016), 2387–2418.CrossRefGoogle Scholar
Bertrand, M.; Duflo, E.; and Mullainathan, S.. “How Much Should We Trust Differences-in-Differences Estimates?” Quarterly Journal of Economics, 119 (2004), 249–275.CrossRefGoogle Scholar
Black, S. E., and Strahan, P. E.. “Entrepreneurship and Bank Credit Availability.” Journal of Finance, 57 (2002), 2807–2833.CrossRefGoogle Scholar
Blum, T. C.; Roman, P. M.; and Martin, J. K.. “Alcohol Consumption and Work Performance.” Journal of Studies on Alcohol and Drugs, 54 (1993), 1–61.Google ScholarPubMed
Bray, J.; Linford, R.; Zarkin, G.; and Aldridge, A.. “The Relationship Between Alcohol Prices and Length of Unemployment Spells.” Working Paper, RTI International and University of North Carolina Greensboro (2013).Google Scholar
Bresnahan, T. F., and Reiss, P. C.. “Entry and Competition in Concentrated Markets.” Journal of Political Economy, 99 (1991), 977–1009.CrossRefGoogle Scholar
Brickley, J. A.; Linck, J. S.; and Smith, C. W. Jr. “Boundaries of the Firm: Evidence from the Banking Industry.” Journal of Financial Economics, 70 (2003), 351–383.CrossRefGoogle Scholar
Butler, A. W., and Cornaggia, J.. “Does Access to External Finance Improve Productivity? Evidence from a Natural Experiment.” Journal of Financial Economics, 99 (2011), 184–203.CrossRefGoogle Scholar
Carvalho, D.; Ferreira, M. A.; and Matos, P.. “Lending Relationships and the Effect of Bank Distress: Evidence from the 2007–2009 Financial Crisis.” Journal of Financial and Quantitative Analysis, 50 (2015), 1165–1197.CrossRefGoogle Scholar
Cetorelli, N. “The Role of Financial Services in Economic Growth.” Chicago Fed Letter 173 (2002).Google Scholar
Cetorelli, N., and Strahan, P. E.. “Finance as a Barrier to Entry: Bank Competition and Industry Structure in Local US Markets.” Journal of Finance, 61 (2006), 437–461.CrossRefGoogle Scholar
Chodorow-Reich, G. “The Employment Effects of Credit Market Disruptions: Firm-Level Evidence from the 2008–9 Financial Crisis.” Quarterly Journal of Economics, 129 (2014), 1–59.CrossRefGoogle Scholar
Coate, S., and Conlin, M.. “A Group Rule: Utilitarian Approach to Voter Turnout: Theory and Evidence.” American Economic Review, 94 (2004), 1476–1504.CrossRefGoogle Scholar
Cole, R. A.; Goldberg, L. G.; and White, L. J.. “Cookie Cutter vs. Character: The Micro Structure of Small Business Lending by Large and Small Banks.” Journal of Financial and Quantitative Analysis, 39 (2004), 227–251.CrossRefGoogle Scholar
DeYoung, R.; Glennon, D.; Nigro, P.; and Spong, K.. “Small Business Lending and Social Capital: Are Rural Relationships Different?” University of Kansas Center for Banking Excellence Research Paper (2013).Google Scholar
Feinberg, R. M. “Patterns and Determinants of Entry in Rural County Banking Markets.” Journal of Industry, Competition and Trade, 9 (2009), 101–115.CrossRefGoogle Scholar
Feyrer, J.; Mansur, E. T.; and Sacerdote, B.. “Geographic Dispersion of Economic Shocks: Evidence from the Fracking Revolution.” American Economic Review, 107 (2017), 1313–1334.CrossRefGoogle Scholar
Frendreis, J., and Tatalovich, R.. “‘A Hundred Miles of Dry’: Religion and the Persistence of Prohibition in the US States.” State Politics Policy Quarterly, 10 (2010), 302–319.CrossRefGoogle Scholar
Gilje, E. “Does Local Access to Finance Matter? Evidence from US Oil and Natural Gas Shale Booms.” Management Science, 65 (2014), 1–18.CrossRefGoogle Scholar
Gilje, E.; Loutskina, E.; and Strahan, P. E.. “Exporting Liquidity: Branch Banking and Financial Integration.” Journal of Finance, 71 (2016), 1159–1184.CrossRefGoogle Scholar
Goos, M.; Manning, A.; and Salomons, A.. “Explaining Job Polarization: Routine-Biased Technological Change and Offshoring.” American Economic Review, 104 (2014), 2509–2526.CrossRefGoogle Scholar
Gopalan, R.; Udell, G. F.; and Yerramilli, V.. “Why Do Firms Form New Banking Relationships?” Journal of Financial and Quantitative Analysis, 46 (2011), 1335–1365.CrossRefGoogle Scholar
Hadlock, C. J., and Pierce, J. R.. “New Evidence on Measuring Financial Constraints: Moving beyond the KZ Index.” Review of Financial Studies, 23 (2010), 1909–1940.CrossRefGoogle Scholar
Harwood, H. J.; Fountain, D.; and Livermore, G.. “The Economic Costs of Alcohol and Drug Abuse in the United States—1992.” US Department of Health and Human Services, National Institutes of Health, National Institute on Drug Abuse, Office of Science Policy and Communications (1998).Google Scholar
Inderst, R., and Mueller, H. M.. “Early-Stage Financing and Firm Growth in New Industries.” Journal of Financial Economics, 93 (2009), 276–291.CrossRefGoogle Scholar
Jayaratne, J., and Strahan, P. E.. “The Finance-Growth Nexus: Evidence from Bank Branch Deregulation.” Quarterly Journal of Economics, 111 (1996), 639–670.CrossRefGoogle Scholar
Kerr, W. R.; Lerner, J.; and Schoar, A.. “The Consequences of Entrepreneurial Finance: Evidence from Angel Financings.” Review of Financial Studies, 27 (2014), 20–55.CrossRefGoogle Scholar
King, R., and Levine, R.. “Finance, Entrepreneurship and Growth.” Journal of Monetary Economics, 32 (1993a), 513–542.CrossRefGoogle Scholar
King, R., and Levine, R.. “Finance and Growth: Schumpeter Might Be Right.” Quarterly Journal of Economics, 108 (1993b), 717–738.CrossRefGoogle Scholar
Moretti, E. “Local Multipliers.” American Economic Review: Papers Proceedings, 100 (2010), 1–7.CrossRefGoogle Scholar
Mullahy, J., and Sindelar, J.. “Employment, Unemployment, and Problem Drinking.” Journal of Health Economics, 15 (1996), 409–434.CrossRefGoogle ScholarPubMed
Paravisini, D. “Local Bank Financial Constraints and Firm Access to External Finance.” Journal of Finance, 63 (2008), 2161–2193.CrossRefGoogle Scholar
Peek, J., and Rosengren, E. S.. “Collateral Damage: Effects of the Japanese Bank Crisis on Real Activity in the United States.” American Economic Review, 90 (2000), 30–45.CrossRefGoogle Scholar
Petersen, M. A., and Rajan, R. G.. “The Benefits of Firm-Creditor Relationships: Evidence from Small-Business Data.” Journal of Finance, 49 (1994), 3–37.CrossRefGoogle Scholar
Petersen, M. A., and Rajan, R. G.. “Does Distance Still Matter? The Information Revolution in Small Business Lending.” Journal of Finance, 57 (2002), 2533–2570.CrossRefGoogle Scholar
Pierce, L.; Snow, D. C.; and McAfee, A.. “Cleaning House: The Impact of Information Technology Monitoring on Employee Theft and Productivity.” Management Science, 61 (2015), 2299–2319.CrossRefGoogle Scholar
Pugsley, B. W., and Sahin, A.. “Grown-Up Business Cycles.” US Census Bureau Center for Economic Studies Paper, No. CES-WP-15-33 (2015).CrossRefGoogle Scholar
Rajan, R. G., and Zingales, L.. “Financial Dependence and Growth.” American Economic Review, 88 (1998), 559–586.Google Scholar
Rice, T., and Strahan, P. E.. “Does Credit Competition Affect Small-Firm Finance?” Journal of Finance, 65 (2010), 861–889.CrossRefGoogle Scholar
Robb, A. M., and Robinson, D. T.. “The Capital Structure Decisions of New Firms.” Review of Financial Studies, 27 (2014), 153–179.CrossRefGoogle Scholar
Robinson, J. “The Model of an Expanding Economy.” Economic Journal, 62 (1952), 42–53.CrossRefGoogle Scholar
Scott, J., and Dunkelberg, W.. “Bank Consolidation and Small Business Lending: A Small Firm Perspective.” Federal Reserve Bank of Chicago Proceedings, 760 (1991), 328–361.Google Scholar
Strumpf, K. S., and Oberholzer-Gee, F.. “Endogenous Policy Decentralization: Testing the Central Tenet of Economic Federalism.” Journal of Political Economy, 110 (2002), 1–36.CrossRefGoogle Scholar
Sweeney, D., and Steinhauser, S.. Restaurant Industry Operations Report. Washington, DC: National Restaurant Association (2010).Google Scholar
Tan, T. F., and Netessine, S.. “When Does the Devil Make Work? An Empirical Study of the Impact of Workload on Worker Productivity.” Management Science, 60 (2014), 1574–1593.CrossRefGoogle Scholar
Tolbert, C. M., and Sizer, M.. “US Commuting Zones and Labor Market Areas: A 1990 Update.” ERS Staff Paper Number 9614. Rural Economy Division, US Department of Agriculture (1996).Google Scholar
Uzzi, B., and Gillespie, J.. “What Small Firms Get Capital and at What Cost: Notes on the Role of Social Capital and Banking Networks.” Federal Reserve Bank of Chicago Proceeding 778 (1991), 413–444.Google Scholar
Williamson, O. E. “Hierarchical Control and Optimum Firm Size.” Journal of Political Economy, 75 (1967), 123–138.CrossRefGoogle Scholar
Supplementary material: PDF

Berger supplementary material

Berger supplementary material

Download Berger supplementary material(PDF)
PDF 120.4 KB