CREAT: Census Research Exploration and Analysis Tool

Small and Large Firms Over the Business Cycle

February 2018

Working Paper Number:

CES-18-09

Abstract

Drawing on a new, con dential Census Bureau dataset of financial statements of a representative sample of 80000 manufacturing firms from 1977 to 2014, we provide new evidence on the link between size, cyclicality, and financial frictions. First, we only find evidence of lower cyclicality among the very largest firms (the top 1% by size). Second, due to high and rising concentration of sales and investment, the lower sensitivity of the top 1% firms dominates the behavior of aggregate fluctuations. Third, we show that this differential sensitivity does not appear to be driven by financial frictions. The higher sensitivity of the bottom 99% does not disappear after controlling for measures of financial strength, is not statistically significant after identified monetary policy shocks, and does not appear in debt financing flows. Evidence from 3-digit industries suggests a non-financial explanation: the largest 1% of firms are less sensitive due to a more diversified customer base.

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investment, macroeconomic, quarterly, financial, finance, leverage, sector, recession, depreciation, bank, debt, equity, gdp, fluctuation, shock, banking

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Internal Revenue Service, Bureau of Economic Analysis, National Income and Product Accounts, Federal Reserve Bank, Federal Trade Commission, Current Population Survey, Longitudinal Business Database, University of California Los Angeles, Employer Identification Numbers, Boston College, E32, Department of Homeland Security, North American Industry Classification System, Public Administration, Business Dynamics Statistics

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