The Business Cycle, Macroeconomic Shocks and the Cross-Section : The Growth of UK Quoted Companies

We bring to light a significant aspect of firm level heterogeneity over the business cycle. Analysing the responsiveness of firm growth (quoted UK companies) to aggregate shocks, we find that the effects of aggregate shocks are more pronounced for firms in the middle range of growth. Rapidly growing and rapidly declining firms are less sensitive to aggregate shocks than firms in the interior of the growth range. This is consistent with the fact that the higher moments of the distribution of firm growth rates have significant cyclical patterns. These findings throw new light on growth of firms as well as on business cycle dynamics