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Contrasting Trends in Firm Volatility: Theory and Evidence

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Author Info
Thesmar, David
Thoenig, Mathias

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Abstract

Over the past decades, the real and financial volatility of listed firms has increased, while the volatility of private firms has decreased. We first provide panel data evidence that, at the firm level, sales and employment volatility are impacted by changes in the degree of ownership concentration. We then construct a model with private and listed firms where risk taking is a choice variable at the firm-level. Due to general equilibrium feedback, we find that an increase in stock market participation or integration in international capital markets generate opposite trends in volatility for private and listed firms. This pattern cannot be replicated by alternative comparative statics exercises, such as an increase in product market competition, an increase in product market size, an increase in the fraction of listed firms, or a decrease in aggregate volatility.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7135.

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Date of creation: Jan 2009
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Handle: RePEc:cpr:ceprdp:7135

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Related research
Keywords: Financial Integration; Firm-level Volatility; Listed vs non-listed Firms; Stockmarket Participation;

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Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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  1. John Y. Campbell, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Journal of Finance, American Finance Association, vol. 56(1), pages 1-43, 02. [Downloadable!] (restricted)
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  2. Rui Castro & Gian Luca Clementi & Glenn MacDonald, 2004. "Legal Institutions, Sectoral Heterogeneity, and Economic Development," 2004 Meeting Papers 162, Society for Economic Dynamics.
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  3. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-51, August.
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  4. Angeletos, George-Marios & Calvet, Laurent-Emmanuel, 2006. "Idiosyncratic production risk, growth and the business cycle," Journal of Monetary Economics, Elsevier, vol. 53(6), pages 1095-1115, September. [Downloadable!] (restricted)
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  5. Diego Comin & Thomas Philippon, 2005. "The Rise in Firm-Level Volatility: Causes and Consequences," NBER Working Papers 11388, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-11-25.

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