2022/27 | LEM Working Paper Series | ||||||||||||||||
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Persistence in firm growth: inference from conditional quantile transition matrices |
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Giulio Bottazzi, Taewon Kang and Federico Tamagni |
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Keywords | |||||||||||||||||
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Firm growth persistence; Transition probability matrices;
Mobility indexes; Non-parametric statistics.
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JEL Classifications | |||||||||||||||||
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C14, D22, L25
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Abstract | |||||||||||||||||
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We propose a new methodology to assess the degree of persistence in firm
growth, based on Conditional Quantile Transition Probability Matrices
(CQTPMs) and well-known indexes of intra-distributional mobility.
Improving upon previous studies, the method allows for exact statistical
inference about TPMs properties, at the same time controlling for
spurious sources of persistence due to confounding factors such as firm
size, and sector-, country- and time-effects. We apply our methodology
to study manufacturing firms in the UK and four major European economies
over the period 2010-2017. The findings reveal that, despite we reject
the null of fully independent firm growth process, growth patterns
display considerable turbulence and large bouncing effects. We also
document that productivity, openness to trade, and business dynamism are
the primary sources of firm growth persistence across sectors. Our
approach is flexible and suitable to wide applicability in firm
empirics, beyond firm growth studies, as a tool to examine persistence
in other dimensions of firm performance.
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