Technology choice and endogenous productivity dispersion over the business cycles

Can Tian

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: Firm Dynamics; Business Cycles; Countercyclical Dispersion (search for similar items in EconPapers)
JEL-codes: E32 L11 L25 (search for similar items in EconPapers)
Date: 2011-05-31, Revised 2011-11-02
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/35951/2/MPRA_paper_35951.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:34480

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