Firms as Bundles of Discrete Resources – Towards an Explanation of the Exponential Distribution of Firm Growth Rates
AbstractA robust feature of the corporate growth process is the Laplace, or symmetric exponential, distribution of firm growth rates. In this paper, we sketch out a class of simple theoretical models capable of explaining this empirical regularity. We do not attempt to generalize on where growth opportunities come from, but rather we focus on how firms build upon growth opportunities. We base ourselves on Penrose's (1959) description of firm growth to explain how the interdependent nature of discrete resources may lead to the triggering off of a series of additions to a firm's resources. In a first formal model, we consider the case of employment growth in a hierarchy, and observe that growth rates follow an exponential distribution. In a second model, we include plant and capital as resources and we are able to reproduce a number of stylized facts about firm growth.
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal Eastern Economic Journal.
Volume (Year): 38 (2012)
Issue (Month): 2 ()
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Other versions of this item:
- Alex Coad, 2008. "Firms as bundles of discrete resources - towards an explanation of the exponential distribution of firm growth rates," Documents de travail du Centre d'Economie de la Sorbonne r08055, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
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