New Department Working Paper: Bettina Bruggemann, Zachary L. Mahone, and Thomas Palmer

We have a new working paper from Bettina Bruggemann, Zachary L. Mahone, and Thomas Palmer!

Ownership Changes and Firm Dynamics

This working paper features two McMaster Professors, and PhD Alum!

Bettina Bruggemann is an Assistant Professor, research interests include financial and public economics and entrepreneurship.

Zachary Mahone is an Assistant Professor, research interests include quantitative macro, firm dynamics, entrepreneurship.

Thomas Palmer is a recent PhD graduate from our program. He is currently a Senior Consultant within the Economics and Research practice of MNP LLP. His research interests include macroeconomics, labour economics, with a focus on questions related to inequality, human capital, and entrepreneurship.

Their working paper is titled, “Ownership Changes and Firm Dynamics“. Previously circulated as “Firm Sales and the Firm Life Cycle”.

Abstract

Ownership changes are common across firms of all sizes, and they have meaningful impacts on firm performance. Using a panel of Canadian administrative data we document that sales are an important margin in the firm life cycle, larger than exit rates for employer firms. Applying an event-study framework, we find that (a) survival rates initially decline post sale, leveling off after three years and (b) conditional on survival, profits are permanently higher. Embedding ownership changes in a model of firm dynamics, we find that 4.5% of entrants survive due to the option value of sale and that, within ten years from birth, 13% of dispersion in firm size is attributable to realized ownership changes. Moreover, ownership changes are particularly important for high productivity firms, accounting for one quarter of revenue concentration among the top 1% of businesses.

For the full set of working papers, visit RePEC/ideas.