Correlated Shocks Within Firms

This paper investigates the correlations and covariances of the growth rates of establishments that have a common parent firm. Due to its association with cross-country business cycles and propagation of idiosyncratic shocks, firm comovement is an important facet of macroeconomic research. Using a long panel of Canadian manufacturing establishments, I find that within-firm establishment pairs have correlations 0.0477 higher than between-firm establishment pairs (which have an average correlation very close to zero) after controlling for industry and region effects.