Contrasting Trends in Firm Volatility: Theory and Evidence

43 Pages Posted: 18 Feb 2009

See all articles by David Thesmar

David Thesmar

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA)

Mathias Thoenig

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); Centre for Economic Policy Research (CEPR); University of Geneva - Department of Political Economics

Date Written: January 2009

Abstract

Over the past decades, the real and financial volatility of listed firms has increased, while the volatility of private firms has decreased. We first provide panel data evidence that, at the firm level, sales and employment volatility are impacted by changes in the degree of ownership concentration. We then construct a model with private and listed firms where risk taking is a choice variable at the firm-level. Due to general equilibrium feedback, we find that an increase in stock market participation or integration in international capital markets generate opposite trends in volatility for private and listed firms. This pattern cannot be replicated by alternative comparative statics exercises, such as an increase in product market competition, an increase in product market size, an increase in the fraction of listed firms, or a decrease in aggregate volatility.

Keywords: Financial Integration, Firm-level Volatility, Listed vs non-listed Firms, Stockmarket Participation

JEL Classification: E44, F41, G32

Suggested Citation

Thesmar, David and Thoenig, Mathias, Contrasting Trends in Firm Volatility: Theory and Evidence (January 2009). CEPR Discussion Paper No. DP7135. Available at SSRN: https://ssrn.com/abstract=1345661

David Thesmar

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139-4307
United States
16172259767 (Phone)

Mathias Thoenig (Contact Author)

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 4313 6380 (Phone)
+33 1 4313 6382 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Geneva - Department of Political Economics ( email )

40 boulevard du Pont-d'Arve
Geneva 4, CH-1211
Switzerland
+41 22 379 8274 (Phone)
+41 22 379 8293 (Fax)

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