DP7135 Contrasting Trends in Firm Volatility: Theory and Evidence

Author(s): David Thesmar, Mathias Thoenig
Publication Date: January 2009
Keyword(s): Financial Integration, Firm-level Volatility, Listed vs non-listed Firms, Stockmarket Participation
JEL(s): E44, F41, G32
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7135

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.