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Firm-Specific Learning and the Investment Behavior of Large and Small Firms

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  • Wenli Li
  • John Weinberg

Abstract

We examine a model of size distribution and growth of firms where firms learn about idiosyncratic productivity parameters through their production experience. Aggregate shocks, by adding noise to learning at the firm level, can produce different responses across firms. In particular, young firms, which are smaller on average than older firms and more uncertain about their productivity, can "overreact" to aggregate shocks. Such differences across firm sizes and ages, which arise here in a model with perfect financial markets, are often attributed to financial frictions that hit small and large firms differently. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Wenli Li & John Weinberg, 2003. "Firm-Specific Learning and the Investment Behavior of Large and Small Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 599-625, May.
    • Handle: RePEc:ier:iecrev:v:44:y:2003:i:2:p:599-625
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    Cited by:

    1. Tatsuro Senga, 2014. "A New Look at Uncertainty Shocks: Imperfect Information and Misallocation," UTokyo Price Project Working Paper Series 042, University of Tokyo, Graduate School of Economics.
    2. Eugénio Pinto, 2009. "Firms' relative sensitivity to aggregate shocks and the dynamics of gross job flows," Finance and Economics Discussion Series 2009-02, Board of Governors of the Federal Reserve System (U.S.).
    3. Venky Venkateswaran, 2011. "Heterogeneous Information and Labor Market Fluctuations," 2011 Meeting Papers 1292, Society for Economic Dynamics.
    4. Jun Ye & Beibei Dong & Ju-Yeon Lee, 2017. "The long-term impact of service empathy and responsiveness on customer satisfaction and profitability: a longitudinal investigation in a healthcare context," Marketing Letters, Springer, vol. 28(4), pages 551-564, December.
    5. Pinto, Eugénio, 2011. "Firms' relative sensitivity to aggregate shocks and the dynamics of gross job flows," Labour Economics, Elsevier, vol. 18(1), pages 111-119, January.

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