Daniel W. Green

Journal Articles

Article | American Economic Journal: Economic Policy | Forthcoming

Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand

Daniel Green, Brian Melzer, Jonathan Parker and Arcenis Rojas

This paper evaluates the Car Allowance Rebate System (CARS) by comparing the vehicle purchases and disposals of households with eligible "clunkers" to those of households with similar, but ineligible, vehicles. CARS caused roughly 500,000 purchases during the program period. The provision of liquidity, through a rebate usable as a down payment, was critical in generating this large response. Participation was rare among households that owned clunkers with outstanding loans, which required loan repayment. This decline in participation is attributed to households' preference for lower down payments and distinguished from the effects of income, other indebtedness, and the program subsidy.

Keywords: Automobiles; purchasing; government incentives; Household; Financial Liquidity; Income; Behavior;

Citation:
Green, Daniel, Brian Melzer, Jonathan Parker, and Arcenis Rojas. "Accelerator or Brake? Cash for Clunkers, Household Liquidity, and Aggregate Demand." American Economic Journal: Economic Policy (forthcoming). View Details

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Article | Journal of Financial Economics | Forthcoming

A Dynamic Theory of Multiple Borrowing

Daniel Green and Ernest Liu

Multiple borrowing—a borrower obtains overlapping loans from multiple lenders—is a common phenomenon in many credit markets. We build a highly tractable, dynamic model of multiple borrowing and show that, because overlapping creditors may impose default externalities on each other, expanding financial access by introducing more lenders may severely backfire. Capital allocation is distorted away from the most productive uses. Entrepreneurs choose inefficient endeavors with low returns-to-scale. These problems are exacerbated when investments become more pledgeable or when borrowers have access to more lenders, explaining why increased access to finance does not always improve outcomes.

Keywords: commitment; multiple borrowing; common agency; misallocation; Microfinance; Investment; Mathematical Methods;

Citation:
Green, Daniel, and Ernest Liu. "A Dynamic Theory of Multiple Borrowing." Journal of Financial Economics (forthcoming). View Details

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Working Papers

Working Paper | 2020

The Allocation of Socially Responsible Capital

Daniel Green and Benjamin N. Roth

A rapidly increasing share of asset allocation decisions incorporate social values in addition to financial considerations. We argue that the most common strategies for socially motivated investing, which only consider the social value of the firms in an investors’ portfolio, are misguided. We develop a tractable framework in which commercial and social investors compete, and identify alternative strategies for social investors that result in higher social welfare and deliver higher financial returns. We discuss several normative implications for socially-motivated investors. From the enterprise perspective, we demonstrate that a focus on increasing profitability can have a greater social impact than a focus on direct social value creation.

Citation:
Green, Daniel, and Benjamin N. Roth. "The Allocation of Socially Responsible Capital." Working Paper, August 2020. View Details

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Working Paper | HBS Working Paper Series | 2020

State and Local Government Employment in the COVID-19 Crisis

Daniel Green and Erik Loualiche

Local governments are facing large losses in revenues and increased expenditures because of the COVID-19 crisis. We document a causal relationship between fiscal pressures induced by COVID-19 and the layoffs of state and local government workers. States that depend more on sales tax as a source of revenue laid off significantly more workers than other states. The CARES Act's provision of $150 billion in aid to state and local governments reduced the fiscal pressures they faced. Exploiting a kink in the formula for allocation of funding across states, we estimate a state and local government employment multiplier for federal aid—each dollar of federal aid was used by states to support 31 cents of payrolls. State rainy day fund balances limit the sensitivity of employment to both revenue shocks, revealing that balanced budget requirements for state and local governments increase the procyclicality of public service provision.

Keywords: local government; municipal finance; public finance; fiscal capacity; fiscal policy;

Citation:
Green, Daniel, and Erik Loualiche. "State and Local Government Employment in the COVID-19 Crisis." Harvard Business School Working Paper, No. 21-023, August 2020. View Details

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Working Paper | 2018

Corporate Refinancing, Covenants, and the Agency Cost of Debt

Daniel Green

How valuable are restrictive debt covenants in reducing the agency costs of debt? I exploit the revealed preference decision to refinance fixed-coupon bonds, which weighs observable interest rate savings against the unobservable costs of a change in restrictive covenants. Variation in this trade-off reveals that firms require higher interest rate savings to refinance when it would add restrictive covenants. I structurally estimate a model of debt refinancing and find that a high-yield bond's restrictive covenant package increases the value of speculative-grade firms by 2.4 percent. This suggests that covenants are essential for allowing the tax benefits of debt to offset costs of financial distress.

Keywords: covenants; refinancing; corporate bonds; interest rates; agency costs; debt policy; Borrowing and Debt; Bonds;

Citation:
Green, Daniel. "Corporate Refinancing, Covenants, and the Agency Cost of Debt." Working Paper, 2018. (Revise and Resubmit, Journal of Finance.) View Details

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