Battle Scars. New Firms’ Capital, Labor, and Revenue Growth During the Double-Dip Recession

45 Pages Posted: 20 Oct 2017

Date Written: September 11, 2017

Abstract

We study growth dynamics of firms before and during the financial crisis. We find that firms born during the recession display lower growth overtime in capital, employment and revenue, despite being more productive at entry than those born in normal times. We show that this pattern can be explained by credit market tightening, as measured by sector-level financial dependence and pre-crisis exposure to the interbank market. We argue that there may be two non-competing mechanisms that affect newborn firms during a financial crisis: firms enter with lower capital and, thus, face tighter collateral constraints; and banks select projects that are less risky, at the expenses of their future growth potential. We provide some evidence that both channels may play a role in explaining the observed pattern of firm dynamics.

Keywords: firm dynamics, cohort analysis, financial crisis

JEL Classification: D22, D24

Suggested Citation

Manaresi, Francesco and Scoccianti, Filippo, Battle Scars. New Firms’ Capital, Labor, and Revenue Growth During the Double-Dip Recession (September 11, 2017). Bank of Italy Occasional Paper No. 390. Available at SSRN: https://ssrn.com/abstract=3056218 or http://dx.doi.org/10.2139/ssrn.3056218

Francesco Manaresi

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Filippo Scoccianti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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