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The impact of uncertainty on the number of businesses

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  • Ghosal, Vivek
  • Ye, Yang

Abstract

Theoretical results based on the asymmetric-information driven credit-market channel, and the real-options mechanism, imply that greater uncertainty is expected to affect entry, exit, and the number of businesses. In this paper we empirically examine the impact of uncertainty on the number of businesses, and whether firm size plays an important role in the magnitude of this effect. Our results indicate that greater uncertainty has a negative and quantitatively meaningful impact on the number of businesses, and the effects are primarily concentrated on the relatively smaller businesses. Our findings point to uncertainty being a potentially important channel which may cause the differential churning rates of smaller and larger businesses, thereby contributing to our understanding of industry and market dynamics, and the potential framing of policy during fluctuations in economic activity.

Suggested Citation

  • Ghosal, Vivek & Ye, Yang, 2019. "The impact of uncertainty on the number of businesses," Journal of Economics and Business, Elsevier, vol. 105(C).
    • Handle: RePEc:eee:jebusi:v:105:y:2019:i:c:s0148619518302546
    DOI: 10.1016/j.jeconbus.2019.04.001
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    More about this item

    Keywords

    Uncertainty; Small businesses; Number of businesses; Financing-constraints; Real-options;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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