Explaining the Persistent Effect of Demand Uncertainty on Firm Growth

Bricongne, Jean-Charles and Gigout, Timothee (2019): Explaining the Persistent Effect of Demand Uncertainty on Firm Growth.

Abstract

We study the effect of demand uncertainty on firm growth. We use product-level bilateral trade data to build an exogenous firm-level measure of the uncertainty of demand shocks. We match it with exhaustive custom and fiscal data between 1996 and 2013. An increase in uncertainty has a negative and persistent impact on the growth of exposed firms. This suggests a different underlying mechanism from a simple real-option effect. Financially constrained firms experience a much sharper and longer slowdown. Sectoral comovement is also a key factor explaining the persistent effect of uncertainty.

• Item Type: MPRA Paper
• Language: English
• Keywords: Uncertainty; demand shock; Firm-level; Dynamics; Heterogeneity.
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; F - International Economics > F6 - Economic Impacts of Globalization > F61 - Microeconomic Impacts

References

Aghion, P., A. Bergeaud, M. Lequien, and M. Melitz (2017). The Impact of Exports on Innovation: Theory and Evidence. Technical report, working paper.

Aghion, P., A. Bergeaud, M. Lequien, and M. J. Melitz (2018). The impact of exports on innovation: Theory and evidence. Technical report, National Bureau of Economic Research.

Baker, S. R., N. Bloom, and S. J. Davis (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics 131(4), 1593–1636.

Barrero, J. M., N. Bloom, and I. Wright (2017). Short and long run uncertainty. Technical report, National Bureau of Economic Research.

Bernanke, B. S. (1983). Irreversibility, uncertainty, and cyclical investment. The Quarterly Journal of Economics 98(1), 85–106.

Berthou, A. and E. Dhyne (2018). Exchange Rate Movements, Firm-Level Exports and Heterogeneity.

Bertrand, M., E. Duflo, and S. Mullainathan (2004). How much should we trust di�erences-indi �erences estimates? The Quarterly journal of economics 119(1), 249–275.

Bloom, N., S. Bond, and J. Van Reenen (2007). Uncertainty and Investment Dynamics. The review of economic studies 74(2), 391–415.

Bussiere, M., L. Ferrara, and J. Milovich (2015). Explaining the Recent Slump in Investment: The Role of Expected Demand and Uncertainty. Technical report, Banque de France Working Paper.

Cezar, R., T. Gigout, and F. Tripier (2017). FDI and Uncertainty: Evidence from French Multinational Firms. Technical report, Working Paper.

Chetty, R., A. Looney, and K. Kroft (2009). Salience and taxation: Theory and evidence. American economic review 99(4), 1145–77.

Crouzet, N., N. R. Mehrotra, et al. (2017). Small and Large Firms Over the Business Cycle. Technical report.

De Sousa, J., A.-C. Disdier, and C. Gaigné (2016). Export decision under risk.

di Giovanni, J., A. A. Levchenko, and I. Mejean (2017). Large firms and international business cycle comovement. American Economic Review 107(5), 598–602.

Esposito, F. (2018). Entrepreneurial Risk and Diversification through Trade.

Favara, G. and J. Imbs (2015). Credit supply and the price of housing. American Economic Review 105(3), 958–92.

Gala, V. and B. Julio (2016). Firm Size and Corporate Investment.

Garin, A., F. Silverio, et al. (2017). How Does Firm Performance A�ect Wages? Evidence from Idiosyncratic Export Shocks. Technical report, Job Market Papers.

Gaulier, G. and S. Zignago (2010). BACI: international trade database at the product-level (the 1994-2007 version).

Gervais, A. (2018). Uncertainty, risk aversion and international trade. Journal of International Economics 115, 145–158.

Gilchrist, S. and C. P. Himmelberg (1995). Evidence on the role of cash flow for investment. Journal of Monetary Economics 36(3), 541–572.

Guiso, L. and G. Parigi (1999). Investment and demand uncertainty. The Quarterly Journal of Economics 114(1), 185–227.

Hainmueller, J., J. Mummolo, and Y. Xu (2019). How much should we trust estimates from multiplicative interaction models? Simple tools to improve empirical practice. Political Analysis 27(2), 163–192.

Hassan, T. A., S. Hollander, L. van Lent, and A. Tahoun (2017). Firm-level political risk: Measurement and e�ects. Technical report, National Bureau of Economic Research.

Hummels, D., R. Jørgensen, J. Munch, and C. Xiang (2014). The wage e�ects of o�shoring: Evidence from danish matched worker-firm data. American Economic Review 104(6), 1597– 1629.

Jordà, Ò. (2005). Estimation and inference of impulse responses by local projections. American Economic Review 95(1), 161–182.

Julio, B. and Y. Yook (2012). Political uncertainty and corporate investment cycles. The Journal of Finance 67(1), 45–83.

Khwaja, A. I. and A. Mian (2008). Tracing the impact of bank liquidity shocks: Evidence from an emerging market. American Economic Review 98(4), 1413–42.

Mayer, T., M. J. Melitz, and G. I. Ottaviano (2016). Product mix and firm productivity responses to trade competition. Technical report, National Bureau of Economic Research.

Vannoorenberghe, G. (2012). Firm-level volatility and exports. Journal of International Economics 86(1), 57–67.

Vannoorenberghe, G., Z. Wang, and Z. Yu (2016). Volatility and diversification of exports: Firm-level theory and evidence. European Economic Review 89, 216–247.