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Intangibles and Endogenous Firm Volatility over the Business Cycle

Author

Listed:
  • 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.

Suggested Citation

  • Hernan Moscoso Boedo & Pablo D'Erasmo, 2013. "Intangibles and Endogenous Firm Volatility over the Business Cycle," 2013 Meeting Papers 97, Society for Economic Dynamics.
  • Handle: RePEc:red:sed013:97
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    References listed on IDEAS

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    1. 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.
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    6. Ayse Imrohoroglu & Selale Tuzel, 2011. "Firm Level Productivity, Risk, and Return," 2011 Meeting Papers 21, Society for Economic Dynamics.
    7. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1151-1199.
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    9. Matthias Kehrig, 2011. "The Cyclicality of Productivity Dispersion," 2011 Meeting Papers 484, Society for Economic Dynamics.
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    Citations

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    Cited by:

    1. Iachan, Felipe Saraiva, 2017. "Capital budgeting and risk taking under credit constraints," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 786, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    2. David M. Arseneau & Ryan Chahrour & Sanjay K. Chugh & Alan Finkelstein Shapiro, 2015. "Optimal Fiscal and Monetary Policy in Customer Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(4), pages 617-672, June.
    3. N. Bloom., 2016. "Fluctuations in uncertainty," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
    4. Mayumi OjimaAuthor-Name: Junnosuke Shino & Kozo Ueda, "undated". "Buyer-Size Discounts and Inflation Dynamics," Working Papers e71, Tokyo Center for Economic Research.
    5. Pablo D. Fajgelbaum & Edouard Schaal & Mathieu Taschereau-Dumouchel, 2017. "Uncertainty Traps," The Quarterly Journal of Economics, Oxford University Press, vol. 132(4), pages 1641-1692.
    6. Hikaru Saijo, "undated". "The Uncertainty Multiplier and Business Cycles," Working Papers e67, Tokyo Center for Economic Research.
    7. Dutz, Mark A. & O'Connell, Stephen D. & Troncoso, Javier L., 2014. "Public and private investments in innovation capabilities : structural transformation in the Chilean wine industry," Policy Research Working Paper Series 6983, The World Bank.
    8. Scott R. Baker & Nicholas Bloom, 2013. "Does Uncertainty Reduce Growth? Using Disasters as Natural Experiments," CEP Discussion Papers dp1243, Centre for Economic Performance, LSE.
    9. Dutz, Mark A., 2013. "Resource reallocation and innovation : converting enterprise risks into opportunities," Policy Research Working Paper Series 6534, The World Bank.
    10. Lawrence Christiano & Roberto Motto & Massimo Rostagno, 2013. "Risk Shocks," NBER Working Papers 18682, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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