Article ID Journal Published Year Pages File Type
965825 Journal of Macroeconomics 2013 13 Pages PDF
Abstract
This study examines the cyclical behaviors of firm-level volatility, measured by real sales growth. Japanese firm-level data show that their volatility is countercyclical, whereas it is procyclical among the United States firms reported in a previous study. We formulate a theoretical model that accounts for these opposing behaviors over the business cycles. The key driving factor behind the relationship is the bankruptcy cost structure, more specifically, the relative magnitude of the fixed and marginal costs of bankruptcy. The fixed bankruptcy cost operates as an entry barrier and the marginal bankruptcy cost operates as an additional cost of hiring. These distinct impacts affect the type of firms entering/exiting the market over the business cycle. We also examine the welfare and policy implications of the model by comparing the structures of bankruptcy costs in terms of efficiency.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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