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Shape of Growth Rate Distribution Determines the Type of Non-Gibrat's Property

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  • Ishikawa, Atushi
  • Fujimoto, Shouji
  • Mizuno, Takayuki
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    Abstract

    In this study, the authors examine exhaustive business data on Japanese firms, which cover nearly all companies in the mid- and large-scale ranges in terms of firm size, to reach several key findings on profits/sales distribution and business growth trends. First, detailed balance is observed not only in profits data but also in sales data. Furthermore, the growth-rate distribution of sales has wider tails than the linear growth-rate distribution of profits in log-log scale. On the one hand, in the mid-scale range of profits, the probability of positive growth decreases and the probability of negative growth increases symmetrically as the initial value increases. This is called Non-Gibrat's First Property. On the other hand, in the mid-scale range of sales, the probability of positive growth decreases as the initial value increases, while the probability of negative growth hardly changes. This is called Non-Gibrat's Second Property. Under detailed balance, Non-Gibrat's First and Second Properties are analytically derived from the linear and quadratic growth-rate distributions in log-log scale, respectively. In both cases, the log-normal distribution is inferred from Non-Gibrat's Properties and detailed balance. These analytic results are verified by empirical data. Consequently, this clarifies the notion that the difference in shapes between growth-rate distributions of sales and profits is closely related to the difference between the two Non-Gibrat's Properties in the mid-scale range.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/18568/1/ifn_wp001.pdf
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    Bibliographic Info

    Paper provided by Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University in its series Working Paper Series with number 1.

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    Length: 24 p.
    Date of creation: 05 Jun 2010
    Date of revision:
    Handle: RePEc:hit:cinwps:1

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