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Aggregate fluctuations and the cross-sectional dynamics of firm growth

Authors


Emiliano Santoro, Via Necchi 5, 20123 Milan, Italy.
E-mail: emiliano.santoro@unicatt.it

Abstract

Summary.  The paper explores time variation in the distribution of firm level growth of total sales. Three novel results are reported. First, firms on the left-hand side of the distribution, i.e. firms that are growing more slowly or declining, are typically more responsive to aggregate shocks than those on the right-hand side of the distribution. Second, trending behaviour in the volatility of firm growth is predominantly driven by increasing dispersion in the growth of highly performing firms. Third, shifts in the probability mass on either side of the mode may act as important propagators of business fluctuations. Financial frictions emerge as a mechanism that is capable of accounting for these facts.

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