Working Paper: CEPR ID: DP7135
Authors: David Thesmar; Mathias Thoenig
Abstract: Over the past decades, the real and financial volatility of listed firms has increased, while the volatility of private firms has decreased. We first provide panel data evidence that, at the firm level, sales and employment volatility are impacted by changes in the degree of ownership concentration. We then construct a model with private and listed firms where risk taking is a choice variable at the firm-level. Due to general equilibrium feedback, we find that an increase in stock market participation or integration in international capital markets generate opposite trends in volatility for private and listed firms. This pattern cannot be replicated by alternative comparative statics exercises, such as an increase in product market competition, an increase in product market size, an increase in the fraction of listed firms, or a decrease in aggregate volatility.
Keywords: Financial Integration; Firm-Level Volatility; Listed vs Non-Listed Firms; Stock-Market Participation
JEL Codes: E44; F41; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Ownership Concentration (G34) | Firm Volatility (G17) |
| Stock Market Participation (G19) | Volatility for Listed Firms (G17) |
| Stock Market Participation (G19) | Volatility for Private Firms (G32) |
| Ownership Concentration (G34) | Sales Volatility (G17) |
| Ownership Concentration (G34) | Employment Volatility (J63) |
| Risk-sharing among Shareholders (G32) | Risky Projects (Listed Firms) (G32) |
| Concentrated Wealth (D31) | Decreased Risk-taking (Private Firms) (G32) |