Essays on the determinants of households and firms' investment choices

Abstract

Chapter 1 develops a theoretical model highlighting how the signaling effect of government subsidies for R&D has a heterogeneous impact over time and across firms depending on their financial constraints. The model shows that all firms might immediately benefit from a reduction in the cost of debt ("certification effect") independently of their initial capital. The strength of this effect depends on the screening ability of the government compared to the banks. Nonetheless, even without the certification effect, the subsidy directly eases firms’ financial constraints by providing additional funds ("resource effect"). The combination of these effects allows firms with less investment capacity to invest and use their project’s success to signal their quality to the market, thus paying a lower cost of debt for future projects ("reputation effect"). In Chapter 2 (joint with Elena Romito), we test the theoretical predictions of Chapter 1 on a sample of Italian firms using a Sharp-RDD. The results indicate that the reputation effect reduces the cost of debt of subsidized firms by 1.3 percentage points. However, we do not find strong evidence in favor of the certification effect. Chapter 3 (joint with Tuna Dökmeci) studies the effect of children’s job insecurity on their parents’ consumption and labor decisions. Using SHIW data and a Difference-in-Difference approach, we estimate this relationship exploiting a firm-size discontinuity introduced by the "Fornero" labor market reform. According to our findings, working parents reduce their consumption by C2,453 per year. Such decrease is mainly driven by a reduction in durable expenses, which decline by C1,600 annually. Even if we do not find any strong effect on the intensive and extensive margin of labor, the study shows that the savings behavior differs depending on the parents’ working status: retired parents not only cut their durable expenses but also reduced their current expenditures.