Sunday, April 3, 2011

Firm Size and the Business Cycle

Recently, a friend of mine has been working on the different behavior of firms depending on their size(at least I think so, I actually only looked at the graphs he used, because reading stuff is exhausting).

Calculated Risk had a nice graph in a post about small businesses' hiring plans. The graph is here. An interesting tidbit is given by Bill McBride in his last paragraph

Small businesses have a larger percentage of real estate and retail related companies than the overall economy. With the high percentage of real estate (including small construction companies), I expect small business hiring to be slow to recover in this cycle. 
The difference in recession types(e.g. 00's construction vs. 90's internet) should provide a "nice" variation to look at the behavior of firms depending on their size. If a recession affects a sector where firms are large, is the recovery stronger and faster? Moreover, if we think that large firms are more linked to the performance of international markets and the health of foreign countries, what is the impact of more globalization(in the sense of a multi-country production process(vertical), or multi-country distribution network(horizontal)) on the shape of the recoveries?

Related, a paper by Pagano and Schivardi looked at firm size by sectors in Europe. Their finding was that


The ranking of sectors is as expected, with light manufacturing, services and construction  characterized by a small average size, chemical, petroleum, finance and transportation equipment at the other extreme and food and trade around the average value.

But


[T]he same sector can be characterized by very different size structures in different countries(...) [W]e find that the sectors that have a most disperse size structure across our set of countries are Hotels & Restaurants, Wood, Construction and Trade. Quite interestingly, all these sectors are non-manufacturing, which suggests that in manufacturing technological factors have a stronger role in determining optimal scale

It's a shame that this paper had no graphs...

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