This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. December 2001
  5. Financial Markets and Firm Dynamics

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Financial Markets and Firm Dynamics

  • Thomas F. Cooley
  • Vincenzo Quadrini
American Economic Review
vol. 91, no. 5, December 2001
(pp. 1286–1310)
Download Full Text PDF

Abstract

Recent studies have shown that the dynamics of firms (growth, job reallocation, and exit) are negatively correlated with the initial size of the firm and its age. In this paper we analyze whether financial factors, in addition to technological differences, are important in generating these dynamics. We introduce financial-market frictions in a basic model of industry dynamics with persistent shocks and show that the combination of persistent shocks and financial frictions can account for the simultaneous dependence of firm dynamics on size (once we control for age) and on age (once we control for size).

Citation

Cooley, Thomas, F., and Vincenzo Quadrini. 2001. "Financial Markets and Firm Dynamics." American Economic Review, 91 (5): 1286–1310. DOI: 10.1257/aer.91.5.1286

JEL Classification

  • L11 Production, Pricing, and Market Structure; Size Distribution of Firms
  • G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
  • D21 Firm Behavior
  • G31 Capital Budgeting; Fixed Investment and Inventory Studies