Table 2: Time line of Production and Receipts

||Period 1|Period 2|
|---|---|---|
|State|Initial Capital Stock: _K_0|New: _K_1 = _I_1 + (1_−δ_)_K_0<br><br>|
||Initial Cash Stock: _X_1|New: _X_2 = _P_1_F_(_K_1_,L_1) + (1 +_r_)<sup>�</sup><br>_X_1 _−wL_1 _−p_<sup>_k_</sup>(_K_1 _−_(1_−δ_)_K_0<br>�|
||Realized Price: _P_1 = <sup> ̄</sup><br>_P_ +_ε_1|Realized Price: _P_2 = <sup> ̄</sup><br>_P_ +_ε_2|
|Choice|Make input choices: _L_1and _K_1|Make input choices:_L_2 and _K_2|
||Pay input costs: _wL_1 +_p_<sup>_k_</sup>(_K_1 _−_(1_−δ_)_K_0)|Pay input costs: _wL_2 +_p_<sup>_k_</sup>(_K_2 _−_(1_−δ_)_K_1)|
||Produce: _F_(_K_1_,L_1)|Produce: _F_(_K_2_,L_2)|

**_Note:_** At the start of the period, the firm has capital and cash. The price that the firm will receive for its product is realized and then it decides on input choices of labor and capital. The next period, the firm receives the revenue which, along with savings, constitutes cash for the next period’s production.

Table 3: Comparing Constrained Outcomes to Unconstrained

||_Model_|_Q_<br>_Q∗_|_L_<br>_L∗_|_K_<br>_K∗_|_P rofit_<br>_P rofit∗_|_N.Obs_|
|---|---|---|---|---|---|---|
|Always Constrained|Working|38%|37%|33%|8%|18159|
||Capital||||||
||Standard|60%|56%|58%|15%|23276|
|Sometimes Constrained|Working|87%|86%|85%|64%|115833|
||Capital||||||
||Standard|na|na|na|na||
|Never Constrained|Working|99%|99%|99%|95%|685008|
||Capital||||||
||Standard|100%|100%|100%|100%|795724|

**_Note:_** _Always Constrained_ : firms are consistently under binding constraints. _Sometimes Constrained_ : firms shift between nonbinding and binding constraints depending on demand shock. _Never Constrained_ : firms that never run into binding constraints 90% of the time. This is also why even under the never constrained phase, the working capital model does not predict 100% of optimal. **_Measurement:_** Percentages are calculated as the constrained outcome variable divided by the corresponding unconstrained outcome for the simulated prices series over time. The average is taken over all borrowing constraints and all observations within constrained phases.

Table 4: Production Inefficiency - Cost <u>per</u> Dollar of Revenue and Labor to Capital Ratio

||Work|ing Capital Mode|l|Standard Ca|pital Adjustmen|t Model|
|---|---|---|---|---|---|---|
||Cost per|Labor to|_N.obs_|Cost per|Labor to|_N.obs_|
||Dollar of|Capital||Dollar of|Capital||
||Revenue|Ratios||Revenue|Ratios||
|Always Constrained|0.825|1.910|25655|0.973|1.63|28276|
|Sometimes Constrained|0.787|1.581|129337|N|ot Applicable||
|Never Constrained|0.712|1.525|685008|0.730|1.88|811724|

**_Note:_** Medians reported. Cost per Revenue Dollar calculated as<sup>_wL_</sup> _P Q_<sup><u>+</u></sup><sup>_<u>pkI</u>_</sup> .

Table 5: Time to Maturity

|model|mean|sd|min|max|N|
|---|---|---|---|---|---|
|Standard|2.35|2.80|1|14|840000|
|Working Capital|8.38|6.43|2|27|840000|

**_Note:_** The standard investment model is the Jorgenson model of investment with financial constraints. **_Simulation:_** 40 time periods, 1000 different simulated paths and 21 different borrowing parameters (from 0 to 2000). Time to maturity: Standard model is steady state capital stock, for Working Capital model is the cash required to respond to 90% of the shock.

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