Financial Markets and Firm Dynamics

Thomas Cooley and Vincenzo Quadrini

American Economic Review, 2001, vol. 91, issue 5, 1286-1310

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).

JEL-codes: D21 G31 G32 L11 (search for similar items in EconPapers)
Date: 2001
Note: DOI: 10.1257/aer.91.5.1286
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Citations: View citations in EconPapers (379)

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