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Firm-level entry and exit dynamics over the business cycles

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  • Tian, Can

Abstract

This paper presents a set of facts on the cyclicality of firm births and deaths in the U.S. during the period 1979–2013. Asymmetry in the cyclicality between firm birth and firm death is observed: aggregate firm birth is generally significantly procyclical, while the (counter-)cyclicality in firm death is ambiguous and sensitive to the choice of cyclical indicator. Such a pattern exists within the majority of sectors as well and is mainly driven by small firms. Young firms are the main contributors to the findings on firm death activity. Further examination along the time-dimension discovers a reason for the contemporaneous cyclicality (or lack thereof) which can be documented as a new fact: firm births positively lead the usual business cycle measures and firm deaths positively lag them. Moreover, cyclicality in business openings and closings differs from establishment level to firm level due to the internal adjustment of continuing firms.

Suggested Citation

  • Tian, Can, 2018. "Firm-level entry and exit dynamics over the business cycles," European Economic Review, Elsevier, vol. 102(C), pages 298-326.
    • Handle: RePEc:eee:eecrev:v:102:y:2018:i:c:p:298-326
    DOI: 10.1016/j.euroecorev.2017.12.011
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    9. Röhe, Oke & Stähler, Nikolai, 2020. "Demographics and the decline in firm entry: Lessons from a life-cycle model," Discussion Papers 15/2020, Deutsche Bundesbank.
    10. Priyaranjan Jha & Antonio Rodriguez-Lopez & Adam Hal Spencer, 2023. "Labour market power and the dynamic gains to openness reforms," Discussion Papers 2023-01, University of Nottingham, GEP.
    11. Clain-Chamosset-Yvrard, Lise & Raurich, Xavier & Seegmuller, Thomas, 2024. "Entrepreneurship, growth and productivity with bubbles," Journal of Macroeconomics, Elsevier, vol. 81(C).
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    13. Konopczak, Karolina, 2019. "Modelling cyclical variation in the cost pass-through: evidence from regime-dependent ARDL model," MF Working Papers 36, Ministry of Finance in Poland.
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    15. Tian, Can, 2022. "Learning and firm dynamics in a stochastic equilibrium," Journal of Economic Theory, Elsevier, vol. 203(C).
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