Creative Destruction and Firm-Specific Volatility
67 Pages Posted: 9 Apr 2005
We investigate underlying factors that explain increases in the firm-specific volatilities of stock returns and fundamentals. We find that firm-specific volatilities are significantly higher in both manufacturing and non-manufacturing industries that are more information technology (IT) intensive. We hypothesise that IT is associated with creative destruction or product differentiation, either of which can widen the performance difference between winner and loser firms. Our findings are consistent with rising firm-specific volatility in U.S. stocks reflecting an accelerating pace of creative destruction; and with greater firmspecific volatility in richer and faster growing countries reflecting more intensive creative destruction in those economies.
Keywords: Information Technology, Firm-Specific Volatility, Creative Destruction
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