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Macroeconomic fluctuations and the firms' rate of growth distribution: evidence from UK and US quoted companies

  • Emiliano Santoro

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    We fit the asymmetric Subbotin distribution introduced by Bottazzi and Secchi (2003) on UK and US data on quoted companies, in order to detect sources of asymmetries in the transmission of aggregate shocks, and cyclical patterns of higher moments of the firms’ rate of growth distribution over the business cycle. We support the evidence provided by Higson et al. (2002, 2004) of a negative correlation between the rate of growth of GDP and the standard deviation and skewness of the distribu- tion. Kurtosis exhibits a procyclical pattern. Furthermore, we provide an explanation of the emergence of these stylised facts based on the evidence that the left tail of the distribution is more responsive to macroeconomic fluctuations than its right counterpart. The evidence points to financial factors as one of the main drivers of the observed pattern.

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    Paper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 0606.

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    Date of creation: 2006
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    Handle: RePEc:trn:utwpde:0606
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    1. Giulio Bottazzi & Giovanni Dosi & Marco Lippi & Fabio Pammolli & Massimo Riccaboni, 2001. "Innovation and Corporate Growth in the Evolution of the Drug Industry," LEM Papers Series 2001/02, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    2. Lu�s M B Cabral & Jos� Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
    3. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    4. Higson, C. & Holly, S. & Kattuman, P. & S. Platis, 2001. "The Business Cycle, Macroeconomic Shocks and the Cross Section: The Growth of UK Quoted Companies," Cambridge Working Papers in Economics 0114, Faculty of Economics, University of Cambridge.
    5. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    7. G. Urga & P. A. Geroski & S. Lazarova & C. F. Walters, 2003. "Are differences in firm size transitory or permanent?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 47-59.
    8. Steel, M.F.J., 1991. "Bayesian inference in time series," Discussion Paper 1991-53, Tilburg University, Center for Economic Research.
    9. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August.
    10. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    11. Cecilia Chaing & Lindsay McSweeney, 2010. "A Behavioral Model of Rational Choice," CPI Journal, Competition Policy International, vol. 6.
    12. Geroski, Paul A, 1999. "The Growth of Firms in Theory and in Practice," CEPR Discussion Papers 2092, C.E.P.R. Discussion Papers.
    13. Bronwyn H. Hall, 1986. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
    14. Gaffeo, Edoardo & Gallegati, Mauro & Palestrini, Antonio, 2003. "On the size distribution of firms: additional evidence from the G7 countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 117-123.
    15. Bottazzi, Giulio & Secchi, Angelo, 2003. "Why are distributions of firm growth rates tent-shaped?," Economics Letters, Elsevier, vol. 80(3), pages 415-420, September.
    16. Gertler, Mark & Lown, Cara S, 1999. "The Information in the High-Yield Bond Spread for the Business Cycle: Evidence and Some Implications," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 132-50, Autumn.
    17. Kuttner, Kenneth N, 1994. "Estimating Potential Output as a Latent Variable," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 361-68, July.
    18. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
    19. Jagjit Chadha & Chris Higson & Sean Holly & Paul Kattuman, 2002. "The Channels of Monetary Policy: Evidence from Firm Level data in the US and the UK," Computing in Economics and Finance 2002 383, Society for Computational Economics.
    20. Hart, Peter E & Oulton, Nicholas, 1996. "Growth and Size of Firms," Economic Journal, Royal Economic Society, vol. 106(438), pages 1242-52, September.
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