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Contrasting Trends in Firm Volatility: Theory and Evidence

  • Thesmar, David
  • Thoenig, Mathias

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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  1. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-51, August.
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  6. Comin, D. & Mulani, S., 2003. "Diverging Trends in Macro and Micro Volatility: Facts," Working Papers 03-08, C.V. Starr Center for Applied Economics, New York University.
  7. Diego Comin & Sunil Mulani, 2005. "A Theory of Growth and Volatility at the Aggregate and Firm Level," NBER Working Papers 11503, National Bureau of Economic Research, Inc.
  8. John Y. Campbell & Martin Lettau & Burton G. Malkiel & Yexiao Xu, 2000. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," NBER Working Papers 7590, National Bureau of Economic Research, Inc.
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