Working Paper
Firm-specific learning and the investment behavior of large and small firms
Abstract: We examine a model of the size distribution and growth of firms whereby firms learn about idiosyncratic productivity parameters. Aggregate shocks, by adding noise to learning at the firm level, can produce differentiated response across firms with their reactions depending on the position of the firms in their individual life cycle. In particular, young firms, which are smaller on average than older firms, 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 to financial frictions that hit small and large firms differently.
Keywords: Corporations; Econometric models; Investments;
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Bibliographic Information
Provider: Federal Reserve Bank of Richmond
Part of Series: Working Paper
Publication Date: 1999
Number: 99-03