New research “Creative Destruction, Stock Return Volatility, and the Number of Listed Firms” shows public firms play a unique role in the dynamism of the economy through creative destruction.
In this working paper, authors examine the relationship between idiosyncratic volatility and the number of listed firms, and explain this relationship through Schumpeterian creative destruction. Comparatively, available data does not show a strong connection between changes in Census firms and creative destruction.
This raises several interesting questions – why are firms that are more likely to contribute to creative destruction choosing to go public? Do these firms contribute because they go public?
The results indicate the importance of IPOs exits for private firms for creative destruction, and further supports existing literature on the relationship between startups and venture funded firms, which are more likely to use IPO exits, and healthy creative destruction in public markets.
Read the full paper “Creative Destruction, Stock Return Volatility, and the Number of Listed Firms“