Financial Markets and Firm Dynamics

Posted: 17 Sep 1998

See all articles by Thomas F. Cooley

Thomas F. Cooley

New York University - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Vincenzo Quadrini

University of Southern California - Marshall School of Business - Finance and Business Economics Department; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

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Abstract

Recent studies of the relationship between firm size and growth have overturned the conclusion of Gilbert's Law that firm size and growth are independent. In this paper we analyze whether financial factors are important in generating a negative relationship between firm size and growth. We develop a general equilibrium model with firms that are heterogeneous in the amount of equity. The financing decisions of firms depends on the amount of equity they have. The model generates firm dynamics in which the production and investment behavior of small and large firms differs substantially, and the model replicates many of the key features of industry evolution: smaller and younger firms experience faster growth, lower survival rates and greater volatility of growth.

JEL Classification: G31, G32

Suggested Citation

Cooley, Thomas F. and Quadrini, Vincenzo, Financial Markets and Firm Dynamics. Simon School of Business Working Paper MP 98-01. Available at SSRN: https://ssrn.com/abstract=128008

Thomas F. Cooley (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

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National Bureau of Economic Research (NBER)

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Vincenzo Quadrini

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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