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Firm-level entry and exit dynamics over the business cycles

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  • Tian, Can

Abstract

This paper presents a set of facts on the cyclicality of firm births and deaths in the U.S. during the period 1979–2013. Asymmetry in the cyclicality between firm birth and firm death is observed: aggregate firm birth is generally significantly procyclical, while the (counter-)cyclicality in firm death is ambiguous and sensitive to the choice of cyclical indicator. Such a pattern exists within the majority of sectors as well and is mainly driven by small firms. Young firms are the main contributors to the findings on firm death activity. Further examination along the time-dimension discovers a reason for the contemporaneous cyclicality (or lack thereof) which can be documented as a new fact: firm births positively lead the usual business cycle measures and firm deaths positively lag them. Moreover, cyclicality in business openings and closings differs from establishment level to firm level due to the internal adjustment of continuing firms.

Suggested Citation

  • Tian, Can, 2018. "Firm-level entry and exit dynamics over the business cycles," European Economic Review, Elsevier, vol. 102(C), pages 298-326.
    • Handle: RePEc:eee:eecrev:v:102:y:2018:i:c:p:298-326
    DOI: 10.1016/j.euroecorev.2017.12.011
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    15. Garnadt, Niklas & von Rueden, Christina & Thiel, Esther, 2021. "Labour reallocation dynamics in Germany during the COVID-19 pandemic and past recessions," Working Papers 08/2021, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    16. Savagar, Anthony, 2021. "Measured productivity with endogenous markups and economic profits," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    17. Röhe, Oke & Stähler, Nikolai, 2020. "Demographics and the decline in firm entry: Lessons from a life-cycle model," Discussion Papers 15/2020, Deutsche Bundesbank.
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    20. Woo, Jinhee, 2022. "The cyclicality of entry and exit: The role of imperfect information," Journal of Economic Dynamics and Control, Elsevier, vol. 137(C).
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