Skewed Business Cycles

This paper studies how the distribution of the growth rate of firm-level variables (sales, profit, inventories, and employment) changes over the business cycle. Using a panel of Compustat firms from 1964 to 2013 we find that, in addition to the well-documented counter cyclicality in dispersion, the third moment---skewness---is strongly pro cyclical. This happens because the distribution of negative growth rates expands during recessions while the distribution of positive growth rates changes little. In fact, this pattern---of lower tail greatly expanding during recessions---is also the main driver behind the counter cyclicality of dispersion. These results are robust to different selection criteria, across firm size categories, and across industries. We also analyze the distribution of macroeconomic outcomes such as GDP growth and stock returns using a panel of developed and developing countries. Here we also find evidence of declining skewness during periods of low economic activity.