Small and Large Firms over the Business Cycle

Neil Mehrotra and Nicolas Crouzet
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Neil Mehrotra: Brown University
Nicolas Crouzet: Northwestern University

No 600, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We analyze the behavior of small and large firms over the business cycle, using new firm-level quarterly data from the US Census Bureau covering the balance sheets and income statements of all firms in the US manufacturing sector. We find that sales, inventory growth, and investment rates are more cyclical among smaller firms. The differential cyclicality holds after controlling for industry effects, and is driven by the behavior of firms in the top 1\% of the asset distribution. We show that the result survives when directly controlling for firm leverage, liquidity, or bank dependency, suggesting that the excess cyclicality of small firms may not be driven by differences in access to credit. Additionally, we find that independent of size, firms with zero debt exhibit less sensitivity to the business cycle than positive leverage firms. Finally, we assess the importance of the excess cylicality of small firms for aggregate fluctuations in sales, inventory, and investment.

Date: 2017
New Economics Papers: this item is included in nep-bec, nep-mac, nep-sbm and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:600

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