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How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size

June 2013

Working Paper Number:

CES-13-30

Abstract

There remains considerable debate in the theoretical and empirical literature about the differences in the cyclical dynamics of firms by firm size. This paper contributes to the debate in two ways. First, the key distinction between firm size and firm age is introduced. The evidence presented in this paper shows that young businesses (that are typically small) exhibit very different cyclical dynamics than small/older businesses. The second contribution is to present evidence and explore explanations for the finding that young/small businesses were hit especially hard in the Great Recession. The collapse in housing prices accounts for a significant part of the large decline of young/small businesses in the Great Recession.

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:
market, macroeconomic, enterprise, quarterly, growth, corporation, corporate, financial, entrepreneurship, finance, financing, sector, recession, firms size, firm growth, younger firms, economically, firm dynamics, decade, firms young

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:
Characteristics of Business Owners, Standard Industrial Classification, Bureau of Labor Statistics, Center for Economic Studies, National Bureau of Economic Research, Financial, Insurance and Real Estate Industries, Longitudinal Business Database, COMPUSTAT, VAR, Department of Homeland Security, Wholesale Trade, North American Industry Classification System, PSID, Kauffman Foundation, Kauffman Firm Survey, Business Dynamics Statistics, Census Bureau Business Dynamics Statistics

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