Varying Heterogeneity among U.S. Firms: Facts and Implications

Hyunbae Chun, Jung-Wook Kim and Randall Morck
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Jung-Wook Kim: Seoul National University

The Review of Economics and Statistics, 2011, vol. 93, issue 3, 1034-1052

Abstract: U.S. firms' stock return volatility rose fivefold from 1971 through 2000 and then reverted to near 1971 levels by 2006. This was driven mainly by a rise and fall in the firm-specific, rather than systematic, component of volatility. Firm-level total factor productivity growth volatility exhibited a similar pattern. We hypothesize that firm heterogeneity, reflected in firm-specific volatility, rises as a new general purpose technology (GPT) propagates across the economy and then ebbs once the GPT is widespread. Measuring GPT adoption by information technology capital intensity, we find robust cross-industry empirical evidence supporting the hypothesis. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2011
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