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Contrasting Trends in Firm Volatility: Theory and Evidence

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  • Thesmar, David
  • Thoenig, Mathias

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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  1. Christian Broda & David Weinstein, 2004. "Globalization and the gains from variety," Staff Reports 180, Federal Reserve Bank of New York.
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  9. Diego Comin & Sunil Mulani, 2003. "Diverging Trends in Macro and Micro Volatility: Facts," Macroeconomics 0306008, EconWPA.
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