Working Paper: NBER ID: w12354
Authors: Steven J. Davis; John Haltiwanger; Ron Jarmin; Javier Miranda
Abstract: We study the variability of business growth rates in the U.S. private sector from 1976 onwards. To carry out our study, we exploit the recently developed Longitudinal Business Database (LBD), which contains annual observations on employment and payroll for all U.S. businesses. Our central finding is a large secular decline in the cross sectional dispersion of firm growth rates and in the average magnitude of firm level volatility. Measured the same way as in other recent research, the employment-weighted mean volatility of firm growth rates has declined by more than 40% since 1982. This result stands in sharp contrast to previous findings of rising volatility for publicly traded firms in COMPUSTAT data. We confirm the rise in volatility among publicly traded firms using the LBD, but we show that its impact is overwhelmed by declining volatility among privately held firms. This pattern holds in every major industry group. Employment shifts toward older businesses account for 27 percent or more of the volatility decline among privately held firms. Simple cohort effects that capture higher volatility among more recently listed firms account for most of the volatility rise among publicly traded firms.
Keywords: business growth rates; volatility; dispersion; publicly traded firms; privately held firms
JEL Codes: D21; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decline in cross-sectional dispersion of firm growth rates (L25) | decline in average magnitude of firm-level volatility among privately held firms (L25) |
| shifts in employment toward older businesses (L26) | decline in average magnitude of firm-level volatility among privately held firms (L25) |
| rise in volatility among publicly traded firms (G17) | overshadowing of declining volatility among privately held firms (G17) |
| newly listed firms (G24) | higher volatility than seasoned listings (G19) |