NBER Publications by Gian Luca Clementi

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Working Papers and Chapters

July 2013Entry, Exit, Firm Dynamics, and Aggregate Fluctuations
with Berardino Palazzo: w19217
Do firm entry and exit play a major role in shaping aggregate dynamics? Our answer is yes. Entry and exit propagate the effects of aggregate shocks. In turn, this results in greater persistence and unconditional variation of aggregate time-series. These are features of the equilibrium allocation in Hopenhayn (1992)'s model of equilibrium industry dynamics, amended to allow for investment in physical capital and aggregate fluctuations. In the aftermath of a positive productivity shock, the number of entrants increases. The new firms are smaller and less productive than the incumbents, as in the data. As the common productivity component reverts to its unconditional mean, the new entrants that survive become more productive over time, keeping aggregate efficiency higher than in a scenario w...
December 2011Cross-Sectoral Variation in The Volatility of Plant-Level Idiosyncratic Shocks
with Rui Castro, Yoonsoo Lee: w17659
We estimate the volatility of plant–level idiosyncratic shocks in the U.S. manufacturing sector. Our measure of volatility is the variation in Revenue Total Factor Productivity which is not explained by either industry– or economy–wide factors, or by establishments’ characteristics. Consistent with previous studies, we find that idiosyncratic shocks are much larger than aggregate random disturbances, accounting for about 80% of the overall uncertainty faced by plants. The extent of cross–sectoral variation in the volatility of shocks is remarkable. Plants in the most volatile sector are subject to about six times as much idiosyncratic uncertainty as plants in the least volatile. We provide evidence suggesting that idiosyncratic risk is higher in industries where the extent of creative dest...

Cross-Sectoral Variation in The Volatility of Plant-Level Idiosyncratic Shocks, with Rui Castro and Yoonsoo Lee, Journal of Industrial Economics, forthcoming

October 2009Executive Compensation: Facts
with Thomas F. Cooley: w15426
In this paper we describe the important features of executive compensation in the US from 1993 to 2006. Some confirm what has been found for earlier periods and some are novel. Important facts about compensation are that: the compensation distribution is highly skewed; each year, a sizeable fraction of chief executives lose money; the use of equity grants has increased; the income accruing to CEOs from the sale of stock has increased; regardless of the measure we adopt, compensation responds strongly to innovations in shareholder wealth; measured as dollar changes in compensation, incentives have strengthened over time, measured as percentage changes in wealth, they have not changed in any appreciable way.
July 2009A Theory of Firm Decline
with Thomas F. Cooley, Sonia Di Giannatale: w15192
We study the problem of an investor who buys an equity stake in an entrepreneurial venture, under the assumption that the former cannot monitor the latter’s operations. The dynamics implied by the optimal incentive scheme is rich and quite different from that induced by other models of repeated moral hazard. In particular, our framework generates a rationale for firm decline. As young firms accumulate capital, the claims of both investor (outside equity) and entrepreneur (inside equity) increase. At some juncture, however, even as the latter keeps on growing, invested capital and firm value start declining and so does the value of outside equity. The reason is that incentive provision is costlier the wealthier the entrepreneur (the greater is inside equity). In turn, this leads to a declin...

Published: Gian Luca Clementi & Thomas Cooley & Soni Di Giannatale. "A Theory of Firm Decline," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics. Volume 13, Issue 4, October 2010, Pages 861-885 citation courtesy of

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