We examine the dynamic relation between firm leverage buildups and real economic activity using U.S. establishment-, firm-, and region-level data. We find that buildups in firm leverage are predictably associated with boom-bust growth cycles: employment grows in the short run but declines in the medium run. While firm leverage buildups are correlated with firm-level expansions, they continue to predict negative future employment growth if we control for firm-level expansions. Buildups in firm leverage predict a tightening of future firm-level financing constraints, and they only predict negative future employment growth if the level of firm leverage is sufficiently high, suggesting that the dynamic relation between firm leverage buildups and employment growth operates through a financial fragility channel. Our results have aggregate implications: regions with larger buildups in firm leverage experience stronger regional boom-bust growth cycles, and they perform significantly worse during national recessions.

We show that venture capitalists' (VCs) on‐site involvement with their portfolio companies leads to an increase in both innovation and the likelihood of a successful exit. We rule out selection effects by exploiting an exogenous source of variation in VC involvement: the introduction of new airline routes that reduce VCs' travel times to their existing portfolio companies. We confirm the importance of this channel by conducting a large‐scale survey of VCs, of whom almost 90% indicate that direct flights increase their interaction with their portfolio companies and management, and help them better understand companies' activities.

The gains from agglomeration economies are believed to be highly localized. Using confidential Census plant‐level data, we show that large industrial plant openings raise the productivity not only of local plants but also of distant plants hundreds of miles away, which belong to large multi‐plant, multi‐region firms that are exposed to the local productivity spillover through one of their plants. This “global” productivity spillover does not decay with distance and is stronger if plants are in industries that share knowledge with each other. To quantify the significance of firms' plant‐level networks for the propagation and amplification of local productivity shocks, we estimate a quantitative spatial model in which plants of multi‐region firms are linked through shared knowledge. Counterfactual exercises show that while large industrial plant openings have a greater local impact in less developed regions, the aggregate gains are greatest when the plants locate in well‐developed regions, which are connected to other regions through firms' plant‐level (knowledge‐sharing) networks.

How do different bankruptcy approaches affect the local economy? Using US Census microdata, we explore the spillover effects of reorganization and liquidation on geographically proximate firms. We exploit the random assignment of bankruptcy judges as a source of exogenous variation in the probability of liquidation. We find that employment declines substantially in the immediate neighborhood of the liquidated establishments, relative to reorganized establishments. The spillover effects are highly localized and concentrate in nontradable and service sectors, consistent with a reduction in local consumer traffic and a decline in knowledge spillovers between firms. The evidence highlights the externalities that bankruptcy design can impose on nonbankrupt firms.

Based on a sample of highly leveraged Austrian ski hotels undergoing debt restructurings, we show that reducing a debt overhang leads to a significant improvement in operating performance. Changes in leverage in the debt restructurings are instrumented with Unexpected Snow, which captures the extent to which a ski hotel experienced unusually good or bad snow conditions prior to the debt restructuring. Unexpected Snow provides lending banks with the counterfactual of what would have been the ski hotel's operating performance in the absence of strategic default, allowing them to distinguish between ski hotels that are in distress due to negative demand shocks (“liquidity defaulters”) and those that are in distress due to debt overhang (“strategic defaulters”).