This paper investigates the microeconomic origins of aggregate economic fluctuations in
Europe. It examines the relevance of idiosyncratic shocks at the top 100 large firms (the
granular shocks) in explaining aggregate macroeconomic fluctuations. The paper also
assesses the strength of spillovers from large firms onto SMEs. Using firm-level data
covering over 14 million firms and eight european countries (Austria, Belgium, Finland,
France, Germany, Italy, Portugal and Spain), we find that: (i) 40 percent of the variance in
GDP in the sample can be explained by idiosyncratic shocks at large firms; (ii) positive
granular shocks at large firms spill over to domestic SMEs’ output, especially if SMEs’
balance sheets are healthy and if SMEs belong to the services and manufacturing sectors.
The bulk of corporate governance theory examines the agency problems that arise from two extreme ownership structures: 100 percent small shareholders or one large, controlling owner combined with small shareholders. In this paper, we question the empirical validity of this dichotomy. In fact, one-third of publicly listed firms in Europe have multiple large owners, and the market value of firms with multiple blockholders differs from firms with a single large owner and from widely-held firms. Moreover, the relationship between corporate valuations and the distribution of cash-flow rights across multiple large owners is consistent with the predictions of recent theoretical models.