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Technology choice and endogenous productivity dispersion over the business cycles

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  • Tian, Can
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    Abstract

    Various empirical works have shown that dispersion of firm-level profitability is significantly countercyclical. I incorporate firms' technology adoption decision into firm dynamics model with business cycle features to explain these empirical findings both qualitatively and quantitatively. The option of endogenous exiting and credit constraint jointly play an important role in motivating firms' risk taking behavior. The model predicts that relatively small sized firms are more likely to take risk, and that the dispersion measured as the variance/standard deviation of firm-level profitability is larger in recessions, which are consistent to the data.

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    File URL: http://mpra.ub.uni-muenchen.de/34480/
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    File URL: http://mpra.ub.uni-muenchen.de/35951/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34480.

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    Date of creation: 31 May 2011
    Date of revision: 02 Nov 2011
    Handle: RePEc:pra:mprapa:34480

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    Keywords: Firm Dynamics; Business Cycles; Countercyclical Dispersion;

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    17. Tobias J. Moskowitz & Annette Vissing-Jorgensen, 2002. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?," NBER Working Papers 8876, National Bureau of Economic Research, Inc.
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