Aggregate Fluctuations and the Cross-Sectional Dynamics of Firm Growth

34 Pages Posted: 19 Apr 2011

See all articles by Sean Holly

Sean Holly

University of Cambridge - Department of Applied Economics

Ivan Petrella

University of Warwick - Finance Group; University of Warwick - Warwick Business School; University of Warwick; Centre for Economic Policy Research (CEPR)

Emiliano Santoro

Catholic University of the Sacred Heart of Milan - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 10, 2011

Abstract

This paper argues that important insights into the business cycle can be obtained by exploring the micro-structure of macroeconomic fluctuations. We fit firm-level growth data with the Asymmetric Exponential Power density, which accounts for asymmetric dispersion and kurtosis on either side of the modal rate. Three novel results are reported. First, firms in the left side of the distribution, that is firms that are growing more slowly or declining, are typically more responsive to aggregate shocks than those in the right side of the distribution. Second, trending behavior in the volatility of firm growth is predominantly driven by increasing dispersion in the growth of highly performing firms. Last, we deliver evidence in support of the view that shifts in the probability mass on either side of the mode may act as important propagators of business fluctuations. The analysis points to financial frictions as one of the mechanisms capable of inducing non-linear micro adjustment consistent with both aggregate and cross-sectional dynamics.

Keywords: Business Cycle, Corporate Growth, Asymmetric Exponential Power Distribution

JEL Classification: C16, E32, G30

Suggested Citation

Holly, Sean and Petrella, Ivan and Petrella, Ivan and Petrella, Ivan and Santoro, Emiliano, Aggregate Fluctuations and the Cross-Sectional Dynamics of Firm Growth (January 10, 2011). Available at SSRN: https://ssrn.com/abstract=1810684 or http://dx.doi.org/10.2139/ssrn.1810684

Sean Holly

University of Cambridge - Department of Applied Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DE
United Kingdom
+44-1223-335251 (Phone)

Ivan Petrella

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Emiliano Santoro (Contact Author)

Catholic University of the Sacred Heart of Milan - Department of Economics ( email )

20123 Milano
Italy

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