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Abstract

This thesis is comprised of three essays: i) Quantitative easing (QE) by the Federal Reserve Bank and its impact of international capital flows; ii) Firm dynamics and business cycle: Does it matter when firms enter the market? iii) Debt and productivity: relationship between finance and growth. The first essay finds evidence that QE was associated with an increase in capital inflow, while tapering was associated with a period of retrenchment. The magnitude of the impact varied by different episodes of QE and the types of assets; the EU countries behaved differently than the emerging market economies (EMEs). The essay finds support for “pull factors”, but it shows that the QE episodes account for most of the variation in capital inflows. By employing a micro-data on firms, the second essay documents the relationship between firm performance and economic conditions during entry. The essay shows that when a firm enters the market during good times, they tend to have lower employment and capital than firms that enter the market during bad times, and the effects tend to persist for a long time. The essay also shows that unlike the advanced economies, economic booms tend to create stronger firms in the EMEs. Employing the same database as the second essay, the third essay sheds light on the relationship between finance and economic growth. It shows that firm level leverage is positively associated with productivity, but there is diminishing returns to leverage. It also shows that aggregate leverage in a country has a negative effect on firm productivity controlling for strength of institutions and level of development.

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