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Analisi dei modelli d’impresa: discontinuità e sviluppo
[Analysing firm's evolution: discontinuity and growth]

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Author Info

  • D'Elia, Enrico
  • Nascia, Leopoldo
  • Zeli, Alessandro

Abstract

Typically, firms change their size through a row of discrete leaps over time. A very basic model allowing for discontinuous growth can be based on a couple of assumptions: (a) in the short run, the firm’s equipment and organization provide the maximum profit only for a given production level, and diverging form it is costly; and (b) in the long run, the firm adjusts its size as if the current equipment had to be exploited until overall profits exceed a given threshold and those expected from the new desired plant for the current production level. Combining the latter two hypotheses entails a number of testable consequences, usually regarded as nuisance facts according to the traditional theories. First of all, the profitability should not be a continuous function of the firms’ size, but exhibits a number of peaks, each corresponding to a different locally optimal size. Secondly, when demand is growing, investment are expected to increase just when profits falls shorter some given threshold. The model has been tested by using a panel of data on the size and performances of Italian manufacturing firms from 1998 to 2007. Indeed, both the non-parametric analysis and a panel estimation confirm the presence of several “peaks” in the distribution of profitability by size. Furthermore, a negative statistical relationship is apparent between investment and profitability, controlling for the size of firms.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35926.

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Date of creation: Nov 2011
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Handle: RePEc:pra:mprapa:35926

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Related research

Keywords: Capacity utilization; Discontinuity; Firm’s size; Growth; Investment; Non parametric smoothing; Panel regression; Profit function;

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References

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  1. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and innovation: an inverted U relationship," IFS Working Papers W02/04, Institute for Fiscal Studies.
  2. Aubhik Khan & Julia Thomas, 2004. "Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics," Staff Report 352, Federal Reserve Bank of Minneapolis.
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  6. Oivind Anti Nilsen & Fabio Schiantarelli, 1996. "Zeroes and Lumps in Investment: Empirical Evidence on Irreversibilities and Non-Convexities," Boston College Working Papers in Economics 337., Boston College Department of Economics, revised 01 Nov 2000.
  7. Luigi Guiso & Chaoqun Lai & Makoto Mirei, 2011. "Detecting Propagation Effects by Observing Aggregate Distributions: The Case of Lumpy Investments," EIEF Working Papers Series 1112, Einaudi Institute for Economics and Finance (EIEF), revised Jun 2011.
  8. Santarelli, Enrico & Vivarelli, Marco, 2006. "Entrepreneurship and the Process of Firms’ Entry, Survival and Growth," IZA Discussion Papers 2475, Institute for the Study of Labor (IZA).
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