Young Firms Under Pressure: Heterogeneous Investment Responses to a Trade Shock

Andreas Dibiasi and Katharina Erhardt

No 12098, CESifo Working Paper Series from CESifo

Abstract: This paper studies heterogeneous firm responses to a sudden trade-induced profitability shock -- the 2015 Swiss franc appreciation. Using firm-level investment data and a novel measure of exposure, we document that this trade shock causes large and persistent investment declines among affected firms. Examining heterogeneous responses among firms with similar exposure, we find that differences in responsiveness are not explained by economic fundamentals but are strongly linked to firm age and managerial experience. Younger firms and those led by less experienced managers react substantially more strongly. We argue that these empirical patterns are consistent with a model of Bayesian learning, in which firms update their beliefs about profitability over time. The results provide important insights into the long-lasting effects of trade shocks on business dynamism, capital investment, and local employment.

Keywords: trade shocks; firm-level investment; exchange rate shocks (search for similar items in EconPapers)
JEL-codes: D22 F14 G31 L25 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-ent and nep-iaf
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12098

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