The Rise in Firm-Level Volatility: Causes and Consequences

We document that the recent decline in aggregate volatility has been accompanied by a large increase in firm-level risk. The negative relationship between firm-level and aggregate risk seems to be present across industries in the United States and across OECD countries. Firm-level volatility increases after deregulation, and it is linked to research and development (R&D) spending, as well as access to external financing. Further, R&D intensity is also associated with lower correlation of sectoral growth with the rest of the economy.