Cross–Sectoral Variation in Firm–Level Idiosyncratic Risk

Rui Castro, Gian Luca Clementi and Yoonsoo Lee ()

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We estimate firm–level idiosyncratic risk in the U.S. manufacturing sector. Our proxy for risk is the volatility of the portion of growth in sales or TFP which is not explained by either industry– or economy–wide factors, or firm characteristics systematically associated with growth itself. We find that idiosyncratic risk accounts for about 90% of the overall uncertainty faced by firms. The extent of cross–sectoral variation in idiosyncratic risk is remarkable. Firms in the most volatile sector are subject to at least three times as much uncertainty as firms in the least volatile. Our evidence indicates that idiosyncratic risk is higher in industries where the extent of creative destruction is likely to be greater.

Keywords: Schumpeterian Competition; Creative Destruction; Product Turnover; R&D Intensity; Investment–Specific Technological Change (search for similar items in EconPapers)
JEL-codes: D24 L16 L60 O30 O31 (search for similar items in EconPapers)
Date: 2010-01
New Economics Papers: this item is included in nep-bec, nep-com and nep-rmg
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Cross–Sectoral Variation in Firm–Level Idiosyncratic Risk (2010)
Working Paper: Cross-Sectoral Variation in Firm-Level Idiosyncratic Risk (2010)
Working Paper: Cross-sectoral variation in firm-level idiosyncratic risk (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:28_10

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