How Firms Respond to Business Cycles: the Role of Firm Age and Firm Size

77 Pages Posted: 20 Jun 2013 Last revised: 8 Oct 2014

See all articles by Teresa Fort

Teresa Fort

Dartmouth College - Tuck School of Business

John Haltiwanger

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Ron S. Jarmin

U.S. Census Bureau

Javier Miranda

U.S. Census Bureau - Center for Administrative Records Research and Applications

Multiple version iconThere are 2 versions of this paper

Date Written: June 2013

Abstract

There remains considerable debate in both the theoretical and empirical literature about the differences in the cyclical dynamics of firms by firm size. Some have hypothesized that small firms are more sensitive to cycles while others have posited that larger firms are more sensitive. Researchers have found evidence supportive of both hypotheses -using different cyclical indicators and focusing on different underlying shocks. This paper contributes to the debate in two ways. First, the key distinction between firm size and firm age is introduced. The evidence presented in this paper shows that young businesses (that are typically small) exhibit very different cyclical dynamics than small/older businesses. Young/small businesses are more sensitive to the cycle than older/larger businesses. Evidence about the difference in the cyclical dynamics between small/older and large/older businesses is mixed. The second contribution is to present evidence and explore explanations for the finding that young/small businesses were hit especially hard in the Great Recession. The collapse in housing prices accounts for a significant part of the large decline of young/small businesses in the Great Recession. The decline was especially pronounced in states with a large decline in housing prices. This pattern holds even after controlling, through a panel VAR, for national and local business cycle conditions.

Suggested Citation

Fort, Teresa C. and Haltiwanger, John C. and Jarmin, Ron S. and Miranda, Javier, How Firms Respond to Business Cycles: the Role of Firm Age and Firm Size (June 2013). NBER Working Paper No. w19134. Available at SSRN: https://ssrn.com/abstract=2282355

Teresa C. Fort

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

John C. Haltiwanger

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3504 (Phone)
301-405-3542 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Ron S. Jarmin

U.S. Census Bureau ( email )

4700 Silver Hill Road
Washington, DC 20233
United States

Javier Miranda

U.S. Census Bureau - Center for Administrative Records Research and Applications ( email )

4700 Silver Hill Road
Washington, DC 20233
United States

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