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Technology choice and endogenous productivity dispersion over the business cycles

  • Tian, Can
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    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/34480/1/MPRA_paper_34480.pdf
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    File URL: http://mpra.ub.uni-muenchen.de/35951/2/MPRA_paper_35951.pdf
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    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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    17. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
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