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Small and Large Firms over the Business Cycle


We provide new evidence on behavior of small and large firms over the business cycle. Drawing from confidential firm-level quarterly data from the US Census Bureau on the income statements and balance sheets of US manufacturing firms from 1977 to 2014, we show that sales, inventory growth, and investment rates are more cyclical among smaller firms. This excess sensitivity holds after controlling for industry effects, and is driven by the behavior of firms in the top 0.5% of the asset distribution. Nevertheless, we show that the excess sensitivity survives when directly controlling for firm leverage, liquidity, or bank dependency, suggesting that it may not be driven by differences in access to credit. Additionally, we find that independent of size, firms with zero debt exhibit less sensitivity to the business cycle than positive leverage firms. Finally, we show that, because of the extreme skewness of the distribution of sales and investment, the excess sensitivity is insufficient in magnitude to substantially affect the cyclical behavior of aggregates in our sample.


Working Paper


Nicolas Crouzet

Date Published



Crouzet, Nicolas. 2017. Small and Large Firms over the Business Cycle.


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