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Explaining the Distribution of Firm Growth Rates

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Author Info
Giulio Bottazzi () (St. Anna School for Advanced Studies)
Angelo Secchi () (LEM Scuola Superiore Sant'Anna)

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Abstract

Empirical analyses on aggregated datasets have revealed a common exponential behavior in the shape of the probability density of corporate growth rates. We present clear-cut evidence on this topic using disaggregated data. We explain the observed regularities proposing a model in which firms' ability to take up new business opportunities increases with the number of opportunities already exploited. A theoretical result is presented for the limiting case in which the number of firms and opportunities go to infinity. Moreover, using simulations, we show that even in a small industry the agreement with asymptotic results is almost complete. Ordering information: This article can be ordered from http://gemini.econ.umd.edu/cgi-bin/rje_online.cgi?action=buy&year=2006&issue=sum&page=235&tid=30492&sc=1869P1N9.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 37 (2006)
Issue (Month): 2 (Summer)
Pages: 235-256
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Handle: RePEc:rje:randje:v:37:y:2006:2:p:235-256

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rebecca Henderson & Iain Cockburn, 1996. "Scale, Scope, and Spillovers: The Determinants of Research Productivity in Drug Discovery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 32-59, Spring. [Downloadable!] (restricted)
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  2. Bottazzi, Giulio & Dosi, Giovanni & Lippi, Marco & Pammolli, Fabio & Riccaboni, Massimo, 2001. "Innovation and corporate growth in the evolution of the drug industry," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1161-1187, July. [Downloadable!] (restricted)
    Other versions:
  3. Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2003. "Does Gibrat's Law hold among young, small firms?," Journal of Evolutionary Economics, Springer, vol. 13(3), pages 213-235, August. [Downloadable!] (restricted)
  4. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August. [Downloadable!] (restricted)
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  5. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
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  6. Geroski, Paul A, 1999. "The Growth of Firms in Theory and in Practice," CEPR Discussion Papers 2092, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 583-606, June. [Downloadable!] (restricted)
    Other versions:
  8. Pakes, A. & Ericson, R., 1990. "Empirical Implications Of Alternative Models Of Firm Dynamics," Papers 594, Yale - Economic Growth Center.
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  9. B. Verspagen & G. Silverberg, 2000. "Breaking the waves: a poisson regression approach to schumpeterian clustering of basic innovations," ECIS Working Papers 00.16, Eindhoven Centre for Innovation Studies, Eindhoven University of Technology. [Downloadable!]
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  10. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 53-82, January. [Downloadable!] (restricted)
  11. Evans, David S., 1986. "The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Working Papers 86-33, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
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  12. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  13. Richard R. Nelson & Sidney G. Winter, 1978. "Forces Generating and Limiting Concentration under Schumpeterian Competition," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 524-548, Autumn. [Downloadable!] (restricted)
  14. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March. [Downloadable!] (restricted)
  15. Giulio Bottazzi & Elena Cefis & Giovanni Dosi & Angelo Secchi, 2003. "Invariances and Diversities in the Evolution of Manufacturing Industries," Working Papers 03-17, Utrecht School of Economics. [Downloadable!]
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  16. Giulio Bottazzi & Angelo Secchi, 2003. "Common Properties and Sectoral Specificities in the Dynamics of U.S. Manufacturing Companies," Review of Industrial Organization, Springer, vol. 23(3), pages 217-232, December. [Downloadable!] (restricted)
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  17. Bottazzi, Giulio & Secchi, Angelo, 2003. "Why are distributions of firm growth rates tent-shaped?," Economics Letters, Elsevier, vol. 80(3), pages 415-420, September. [Downloadable!] (restricted)
  18. Giulio Bottazzi & Elena Cefis & Giovanni Dosi, 2001. "Corporate Growth and Industrial Structure. Some Evidence from the Italian Manufacturing Industry," LEM Papers Series 2001/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
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  19. L. A. N. Amaral & S. V. Buldyrev & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: I. Empirical results for company growth," Quantitative Finance Papers cond-mat/9702082, arXiv.org. [Downloadable!]
  20. Singh, Ajit & Whittington, Geoffrey, 1975. "The Size and Growth of Firms," Review of Economic Studies, Blackwell Publishing, vol. 42(1), pages 15-26, January. [Downloadable!] (restricted)
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