Abstract
We utilize the data of manufacturing industries in China to estimate industry-level demand tail risks, and explore whether and how the demand tail risks affect the entry and exit of firms. Empirical results indicate that: (1) Demand tail risks indeed can suppress the entry of firm and exaggerate exit significantly through three channels: depressing entrepreneur’s confidence, deteriorating firm’s financing constraints and reducing firm’s TFP; (2) Such impacts are heterogeneous across different firms and industries. This paper enriches the literature on the factors influencing the firms’ entry and exit, and also carry out some policy implications.
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