I study how pension fund investment in non-financial firms affects growth. Using archival data and confidential public records, I reconstruct security-level holdings of British defined-benefit schemes from 2000 to 2024. I then use a reform in 2004, which tightened risk requirements on pension funds, as a natural experiment to identify the impact of pension capital withdrawal at the firm level. Over a five-year horizon, a one-percentage point decline in pension ownership reduces firms’ capital expenditure by 0.8 percent, R\&D by 1.2 percent, and investment duration by 0.4 percent. To interpret these findings, I embed a heterogeneous-investor asset-pricing model in a Schumpeterian growth framework. Lower pension ownership raises equity premia, thus reducing incumbent R\&D but also freeing up resources for entry. This generates a hump-shaped relation between pension investment and growth. I analytically characterise the optimal degree of regulation. Finally, I quantify the aggregate effect of the 2004 reform and show that the associated reduction in pension fund investment accounts for one-third of the observed decline in growth.

We introduce a model of endogenous growth and firm dynamics with soft budget constraints. Firms differ in innovation speed and slower firms need additional financing to eventually innovate. As creditors cannot anticipate refinancing needs in advance nor credibly commit to withholding future refinancing, a Soft Budget Constraint Syndrome emerges, causing excessive entry by slow firms and crowding out potentially more efficient innovators. The resulting trade-off between positive effects of budget constraint softening on innovation by incumbents and slow-type entrants versus negative effects on entry by fast innovators generates a hump-shaped relationship between refinancing costs and aggregate growth. Calibrating the model to French firm-level data, we assess the aggregate growth impact of budget constraint softening triggered by the post–financial crisis decline in observed interest payments. Our model can generate about three-fifths of the observed drop in aggregate growth rates, of which 64 percent is driven by a direct effect through incumbent innovation and enhanced firm entry, and the remaining 36 percent arises from shifts in the firm size distribution induced by budget constraint softening.

How do banks shape firm turnover and creative destruction? This paper develops a growth model in which creative destruction is driven by the decision of banks to liquidate long-term loans with high default risk. We show analytically and quantitatively that policies aimed at encouraging more loan liquidation (e.g., reformed insolvency laws) do not only accelerate firm turnover and  improve aggregate productivity, but also foster firm creation and  boost growth. Such improvements at the exit margin complement policies designed to stimulate firm creation (e.g., start-up subsidies). The complementarity between entry and exit emerges because loan liquidation releases funds for new lending and thus relaxes the aggregate funding constraint, leading to a lower interest rate that benefits new firms. Due to this interest rate effect, tighter bank capital regulation may even increase firm creation whenever bank funding is inelastic.

What is the interaction between real interest rates and economic growth? This paper introduces a model in which real interest rates affect the direction of creative destruction through changes in financial intermediaries' portfolio allocation. Faced with regulatory or financial constraints that limit the size of their balance sheets, intermediaries evaluate new investment opportunities against the going-concern value of their legacy investments. Low real rates decrease the opportunity cost of continuing low-return projects and slow down the reallocation of capital towards high-productivity investments. A long-run decline in real rates has a hump-shaped effect on growth: When real rates are initially high, there is too much reallocation. Falling rates are expansionary. When real rates are already low, there is not enough reallocation and a further decrease depresses growth. Sustained downward pressure on real rates gives rise to a boom-bust cycle. Policies that encourage reallocation, such as tax deductions on unrealised losses, foster growth.

This paper analyses the investment activity and performance of pension schemes in private equity markets. Using a new data set on the historical asset allocation and returns of British Local Government Pension Schemes (LGPS), I document three trends: (i) there has been a steady increase in private market exposure since the pension reforms of 2004; (ii) pension schemes with historically low portfolio returns have shifted a larger fraction of their capital towards private markets; and (iii) these schemes subsequently did not outperform common public equity benchmarks.

For the last twenty years, corporate bankruptcy rates as a share of firm exit have been declining. We argue that this trend is precipitated by a rise in the importance of intangible knowledge capital and a decline in the importance of physical assets. Because the current bankruptcy code has been designed to facilitate the reallocation of physical capital between firms, it is no longer fit for purpose. This paper builds a model of creative destruction in which firms endogenously choose investment, capital structure, and bankruptcy. A rise in the importance of knowledge capital leads to an initial boom in investment and corporate bankruptcies, and to a subsequent steady decline in corporate restructuring, firm turnover, and investment. The economy's inability to restructure insolvent knowledge-intensive firms encourages the emergence of zombie firms, and culminates in a protracted growth slow-down.