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Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms

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Author Info
Steven J. Davis
John Haltiwanger
Ron Jarmin
Javier Miranda

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Abstract

We study the variability of business growth rates in the U.S. private sector from 1976 onwards. To carry out our study, we exploit the recently developed Longitudinal Business Database (LBD), which contains annual observations on employment and payroll for all U.S. businesses. Our central finding is a large secular decline in the cross sectional dispersion of firm growth rates and in the average magnitude of firm level volatility. Measured the same way as in other recent research, the employment-weighted mean volatility of firm growth rates has declined by more than 40% since 1982. This result stands in sharp contrast to previous findings of rising volatility for publicly traded firms in COMPUSTAT data. We confirm the rise in volatility among publicly traded firms using the LBD, but we show that its impact is overwhelmed by declining volatility among privately held firms. This pattern holds in every major industry group. Employment shifts toward older businesses account for 27 percent or more of the volatility decline among privately held firms. Simple cohort effects that capture higher volatility among more recently listed firms account for most of the volatility rise among publicly traded firms.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12354.

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Date of creation: Jul 2006
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Handle: RePEc:nbr:nberwo:12354

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Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Laura Veldkamp & Justin Wolfers, 2006. "Aggregate Shocks or Aggregate Information? Costly Information and Business Cycle Comovement," Working Papers 06-12, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
    Other versions:
  2. André Kurmann & Nicolas Petrosky-Nadeau, 2007. "Search Frictions in Physical Capital Markets as a Propagation Mechanism," Cahiers de recherche 0712, CIRPEE. [Downloadable!]
    Other versions:
  3. Miles Parker, 2006. "Diverging Trends in Aggregate and Firm-Level Volatility in the UK," Discussion Papers 16, Monetary Policy Committee Unit, Bank of England. [Downloadable!]
  4. William Kerr & Ramana Nanda, 2006. "Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship," Working Papers 07-033, Harvard Business School, revised Dec 2007. [Downloadable!]
    Other versions:
  5. Andrew Atkeson & Ariel Burstein, 2007. "Innovation, firm dynamics, and international trade," NBER Working Papers 13326, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Erzo G.J. Luttmer, 2008. "On the mechanics of firm growth," Working Papers 657, Federal Reserve Bank of Minneapolis. [Downloadable!]
  7. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," NBER Working Papers 12167, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Francisco Covas & Shigeru Fujita, 2007. "Private risk premium and aggregate uncertainty in the model of uninsurable investment risk," Working Papers 07-30, Federal Reserve Bank of Philadelphia. [Downloadable!]
  9. Rodrigo Canales & Ramana Nanda, 2008. "Bank Structure and the Terms of Lending to Small Businesses," Working Papers 08-101, Harvard Business School. [Downloadable!]
  10. Diego Comin & Sunil Mulani, 2007. "A theory of growth and volatility at the aggregate and firm level," Proceedings, Federal Reserve Bank of San Francisco, issue Nov. [Downloadable!]
    Other versions:
  11. Steven J. Davis & James A. Kahn, 2007. "Macroeconomic implications of changes in micro volatility," Proceedings, Federal Reserve Bank of San Francisco, issue Nov. [Downloadable!]
  12. Steven J. Davis & James A. Kahn, 2008. "Interpreting the Great Moderation: Changes in the Volatility of Economic Activity at the Macro and Micro Levels," NBER Working Papers 14048, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Karen E. Dynan & Douglas W. Elmendorf & Daniel E. Sichel, 2006. "Financial innovation and the Great Moderation: what do household data say?," Proceedings, Federal Reserve Bank of San Francisco, issue Nov. [Downloadable!]
  14. Erzo G.J. Luttmer, 2007. "On the Mechanics of Firm Growth," Working Papers 2007-4, University of Minnesota, Department of Economics, revised 10 2007. [Downloadable!]
  15. Steven J. Davis & R. Jason Faberman & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Business volatility, job destruction and unemployment," Proceedings, Federal Reserve Bank of San Francisco, issue Nov. [Downloadable!]
  16. Thomas Philippon & Yuliy Sannikov, 2007. "Real Options in a Dynamic Agency Model, with Applications to Financial Development, IPOs, and Business Risk," NBER Working Papers 13584, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Lucia Foster & John Haltiwanger & Namsuk Kim, 2006. "Gross Job Flows for the U.S. Manufacturing Sector: Measurement from the Longitudinal Research Database," Working Papers 06-30, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  19. Karen E. Dynan & Douglas W. Elmendorf & Daniel E. Sichel, 2007. "The evolution of household income volatility," Finance and Economics Discussion Series 2007-61, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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