How Does Firm-level Risk Affect Productivity?

44 Pages Posted: 20 Jul 2020

See all articles by Xiang Li

Xiang Li

Halle Institute for Economic Research

Dan Su

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: October 15, 2019

Abstract

This study quantifies and decomposes the impact of increasing firm risk on different production factors. We find that a one standard deviation increase in firm-level risk reduces the total output growth rate of a firm by 1.19 percentage points, of which approximately 77% is from the reduction in total factor productivity growth, 21% is from slower labor growth and only 2% is from slower capital growth. We provide the first evidence of the relationship between firm risk and firm-level total factor productivity, and the transmission mechanisms are reduced human capital investment and a tightened financial constraint.

Keywords: Firm-level uncertainty, Total factor productivity, Human Capital, Financial Constraint

JEL Classification: D81, G32

Suggested Citation

Li, Xiang and Su, Dan, How Does Firm-level Risk Affect Productivity? (October 15, 2019). Available at SSRN: https://ssrn.com/abstract=3637001 or http://dx.doi.org/10.2139/ssrn.3637001

Xiang Li (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Dan Su

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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