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The tails of firm growth, granularity, and business cycles

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  • Daniel Santos, Carlos

Abstract

We document that the kurtosis of firm growth rates increases with firm size, indicating that even the largest firms are susceptible to significant, concentrated risks. To account for these cross-sectional characteristics, we develop a model where aggregate fluctuations are driven by customer concentration. We show that shocks are amplified only when large firms also have highly concentrated customer bases. This mechanism accounts for two stylized facts: the higher volatility of small firms and the heavier-tailed growth distributions of large firms. Customer concentration limits diversification and increases tail risks. Our findings suggest that understanding macroeconomic risk requires considering not just firm size, but also the concentration of their sales.

Suggested Citation

  • Daniel Santos, Carlos, 2026. "The tails of firm growth, granularity, and business cycles," International Journal of Industrial Organization, Elsevier, vol. 105(C).
    • Handle: RePEc:eee:indorg:v:105:y:2026:i:c:s0167718726000111
    DOI: 10.1016/j.ijindorg.2026.103258
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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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