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The Growth of Business Firms: Theoretical Framework and Empirical Evidence

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  • Fu, Dongfeng
  • Pammolli, Fabio
  • Buldyrev, Sergey V.
  • Riccaboni, Massimo
  • Matia, Kaushik
  • Yamasaki, Kazuko
  • Stanley, H. Eugene

Abstract

We introduce a model of proportional growth to explain the distribution of business firm growth rates. The model predicts that it is exponential in the central part and depicts an asymptotic power-law behavior in the tails with an exponent ζ = 3. Because of data limitations, previous studies in this field have been focusing exclusively on the Laplace shape of the body of the distribution. In this article, we test the model at different levels of aggregation in the economy, from products to firms to countries, and we find that the model’s predictions agree with empirical growth distributions and size-variance relationships.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15905.

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Date of creation: 2005
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Publication status: Published in Proceedings of the National Academy of Sciences 52.102(2005): pp. 18801-18806
Handle: RePEc:pra:mprapa:15905

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Keywords: proportional growth; preferential attachment; Laplace distribution;

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References

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  1. 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," Papers cond-mat/9702082, arXiv.org.
  2. De Fabritiis, Gianni & Riccaboni, Massimo & Pammolli, Fabio, 2003. "On Size and Growth of Business Firms," MPRA Paper 15866, University Library of Munich, Germany.
  3. Kaushik Matia & Dongfeng Fu & Sergey V. Buldyrev & Fabio Pammolli & Massimo Riccaboni & H. Eugene Stanley, 2005. "Statistical Properties of Business Firms Structure and Growth," Papers physics/0502081, arXiv.org.
  4. Youngki Lee & Luis A. N. Amaral & David Canning & Martin Meyer & H. Eugene Stanley, 1998. "Universal features in the growth dynamics of complex organizations," Papers cond-mat/9804100, arXiv.org.
  5. Canning, D. & Amaral, L. A. N. & Lee, Y. & Meyer, M. & Stanley, H. E., 1998. "Scaling the volatility of GDP growth rates," Economics Letters, Elsevier, vol. 60(3), pages 335-341, September.
  6. S. V. Buldyrev & L. A. N. Amaral & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: II. Modeling of company growth," Papers cond-mat/9702085, arXiv.org.
  7. Stephen Hymer & Peter Pashigian, 1962. "Firm Size and Rate of Growth," Journal of Political Economy, University of Chicago Press, vol. 70, pages 556.
  8. 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.
  9. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  10. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
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