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

In this paper we provide a new dimension to business cycle analysis, going beyond the traditional focus on the co-movements and correlations in macroeconomic aggregates. We bring to light a significant form of firm level heterogeneity over the business cycle. We analyse the responsiveness of firm growth (quoted UK companies, over the thirty year period to 1997) to business cycle movements and find that the effects of aggregate shocks, positive and negative, are more pronounced for firms in the middle range of growth. We show that the higher moments of the distribution of firm growth rates are significantly counter cyclical, and that this also follows from the fact that rapidly growing and rapidly declining firms are less sensitive to aggregate shocks than firms in the interior of the growth range. These findings are of importance in understanding firm growth as well as business cycle dynamics