Varying Heterogeneity Among U.S. Firms: Facts and Implications
Review of Economics and Statistics, Vol. 93, No. 3, 2011
University of Alberta School of Business Research Paper No. 2013-237
Posted: 26 May 2013 Last revised: 4 Jun 2013
Date Written: July 21, 2010
Abstract
U.S. firms' stock return volatility rose fivefold from 1971 through 2000 and then reverted to near 1971 levels by 2006. This was driven mainly by a rise and fall in the firm-specific, rather than systematic, component of volatility. Firm-level total factor productivity growth volatility exhibited a similar pattern. We hypothesize that firm heterogeneity, reflected in firm-specific volatility, rises as a new general purpose technology (GPT) propagates across the economy and then ebbs once the GPT is widespread. Measuring GPT adoption by information technology capital intensity, we find robust cross-industry empirical evidence supporting the hypothesis.
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