Macro Shocks and Firm-Level Response Heterogeneity

Steven Davis, Stephen Hansen and Cristhian Seminario-Amez

No 20358, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Macro shocks produce high dispersion in firm-level equity returns, sales growth, and other outcomes. We show that this dispersion reflects observable differences in business characteristics. To do so, we combine firm-level returns on stock market ``jump" days with text about business risks in prior 10-K filings to construct firm-specific shock exposures. Our exposure measures explain firm-level abnormal returns through interpretable variation in language. They also explain most of the increased dispersion in firm-level revenue growth after major shocks and much of the dispersion in employment growth, investment rates, and earnings surprises. Our evidence yields a novel interpretation for countercyclical dispersion, highlighting the key role of heterogeneous business characteristics in macro shock transmission.

Keywords: Firm heterogeneity; Text data; Machine learning; Shock identification (search for similar items in EconPapers)
JEL-codes: C55 E30 L20 (search for similar items in EconPapers)
Date: 2025-06
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