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Intangibles and Endogenous Firm Volatility over the Business Cycle

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  • Hernan Moscoso Boedo

    (University of Virginia)

  • Pablo D'Erasmo

    (University of Maryland)

Abstract

This is a theory of endogenous volatility over the business cycle based on firm-level intangible expenditures. We propose a firm dynamics model with endogenous market participation. Firms that incur higher intangible expenses are able to serve more markets and diversify market-specific demand risk. The model is driven only by TFP shocks and captures the business cycle properties of firm-level volatility and intangibles expenditures. We empirically document that firm-level volatility is counter-cyclical and that intangible expenses are pro-cyclical. Consistent with our model, using data from the Kauffman Firm Survey and Compustat, we find that firm-level idiosyncratic volatility is negatively correlated with intangible expenditures.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 97.

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Date of creation: 2013
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Handle: RePEc:red:sed013:97

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References

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  1. Rui Castro & Gian Luca Clementi & Glenn Macdonald, 2009. "Legal Institutions, Sectoral Heterogeneity, and Economic Development," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 529-561.
  2. Bloom, Nicholas & Eifert, Benn & Mahajan, Aprajit & McKenzie, David & Roberts, John, 2010. "Does Management Matter?: Evidence from India," Research Papers 2074, Stanford University, Graduate School of Business.
  3. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 107-180 National Bureau of Economic Research, Inc.
  4. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," Working Papers 11-15, Center for Economic Studies, U.S. Census Bureau.
  5. CASTRO, Rui & CLEMENTI, Gian Luca & LEE, Yoonsoo, 2010. "Cross–Sectoral Variation in Firm–Level Idiosyncratic Risk," Cahiers de recherche 2010-07, Universite de Montreal, Departement de sciences economiques.
  6. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
  7. Costas Arkolakis, 2008. "Market Penetration Costs and the New Consumers Margin in International Trade," NBER Working Papers 14214, National Bureau of Economic Research, Inc.
  8. John C. Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," NBER Working Papers 16300, National Bureau of Economic Research, Inc.
  9. Ayse Imrohoroglu & Selale Tuzel, 2011. "Firm Level Productivity, Risk, and Return," 2011 Meeting Papers 21, Society for Economic Dynamics.
  10. repec:ste:nystbu:05-20 is not listed on IDEAS
  11. Ruediger Bachmann & Giuseppe Moscarini, 2011. "Business Cycles and Endogenous Uncertainty," 2011 Meeting Papers 36, Society for Economic Dynamics.
  12. Bronwyn H. Hall, 1990. "The Manufacturing Sector Master File: 1959-1987," NBER Working Papers 3366, National Bureau of Economic Research, Inc.
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Cited by:
  1. Dutz, Mark A., 2013. "Resource reallocation and innovation : converting enterprise risks into opportunities," Policy Research Working Paper Series 6534, The World Bank.
  2. Lawrence Christiano & Roberto Motto & Massimo Rostagno, 2013. "Risk Shocks," NBER Working Papers 18682, National Bureau of Economic Research, Inc.
  3. David M. Arseneau & Sanjay K. Chugh, 2008. "Optimal fiscal and monetary policy in customer markets," International Finance Discussion Papers 919, Board of Governors of the Federal Reserve System (U.S.).
  4. Nicholas Bloom, 2013. "Fluctuations in Uncertainty," NBER Working Papers 19714, National Bureau of Economic Research, Inc.
  5. Scott R. Baker & Nicholas Bloom, 2013. "Does Uncertainty Reduce Growth? Using Disasters as Natural Experiments," NBER Working Papers 19475, National Bureau of Economic Research, Inc.

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