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Towards an Explanation of the Exponential Distribution of Firm Growth Rates

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Author Info
Alex Coad () (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Max Planck Institute of Economics - Evolutionary Economics Group)
Abstract

A robust feature of the corporate growth process is the exponential distribution of firm growth rates. This striking empirical regularity has been found to hold for a number of different datasets and at different levels of aggregation. In this paper, we propose a simple theoretical model capable of explaining this observed exponential distribution. We do not attempt to generalize on where growth opportunities come from, but rather we focus on how firms build upon growth opportunities. We borrow ideas from the self-organizing criticality literature to explain how the interdependent nature of discrete resources may lead to the triggering off a series of additions to a firm's resources. In a formal model we consider the case of employment growth in a hierarchy, and observe that growth rates follow an exponential distribution.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00113346_v1.

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Date of creation: Mar 2006
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Handle: RePEc:hal:cesptp:halshs-00113346_v1

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Related research
Keywords: Firm growth rates; exponential distribution; hierarchy.;

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  1. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75, pages 123. [Downloadable!] (restricted)
  2. Giulio Bottazzi & Alex Coad & Nadia Jacoby & Angelo Secchi, 2005. "Corporate Growth and Industrial Dynamics: Evidence from French Manufacturing," LEM Papers Series 2005/21, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  3. 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)
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  4. Giulio Bottazzi & Elena Cefis & Giovanni Dosi, 2002. "Corporate growth and industrial structures: some evidence from the Italian manufacturing industry," Industrial and Corporate Change, Oxford University Press, vol. 11(4), pages 705-723, August.
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  5. 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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  6. Bak, Per & Chen, Kan & Scheinkman, Jose & Woodford, Michael, 1993. "Aggregate fluctuations from independent sectoral shocks: self-organized criticality in a model of production and inventory dynamics," Ricerche Economiche, Elsevier, vol. 47(1), pages 3-30, March. [Downloadable!] (restricted)
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  1. Alex Coad, 2007. "A Closer Look at Serial Growth Rate Correlation," Review of Industrial Organization, Springer, vol. 31(1), pages 69-82, August. [Downloadable!] (restricted)
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  2. Alex Coad, 2006. "Understanding the processes of firm Growth - a closer look at serial growth rate correlation," Cahiers de la Maison des Sciences Economiques r06051, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
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