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Explaining the Distribution of Firms Growth Rates

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Author Info

  • Giulio Bottazzi
  • Angelo Secchi

Abstract

Empirical analyses on aggregated datasets have revealed a common exponential behavior in the shape of the probability density of the corporate growth rates. We present clearcut evidence on this topic using disaggregated data. We explain the observed regularities proposing a model in which the firms’ ability of taking 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.

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Bibliographic Info

Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2005/16.

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Date of creation: 15 Jul 2005
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Handle: RePEc:ssa:lemwps:2005/16

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Related research

Keywords: Firm Growth; Laplace Distribution; Urn Processes;

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References

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  1. Silverberg,Gerald & Verspagen,Bart, 2000. "Breaking the Waves: A Poisson Regression Approach to Schumpeterian Clustering of Basic Innovations," Research Memorandum 026, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  2. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  3. 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_4), pages 217-232, December.
  4. Singh, Ajit & Whittington, Geoffrey, 1975. "The Size and Growth of Firms," MPRA Paper 51715, University Library of Munich, Germany.
  5. Giulio Bottazzi & Giovanni Dosi & Marco Lippi & Fabio Pammolli & Massimo Riccaboni, 2001. "Innovation and Corporate Growth in the Evolution of the Drug Industry," LEM Papers Series 2001/02, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  6. B. Verspagen & G. Silverberg, 2000. "Breaking the waves: a poisson regression approach to schumpeterian clustering of basic innovations," Eindhoven Center for Innovation Studies (ECIS) working paper series 00.16, Eindhoven Center for Innovation Studies (ECIS).
  7. 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.
  8. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November.
  9. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  10. 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.
  11. Geroski, Paul A, 1999. "The Growth of Firms in Theory and in Practice," CEPR Discussion Papers 2092, C.E.P.R. Discussion Papers.
  12. 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.
  13. Pakes, Ariel & Ericson, Richard, 1998. "Empirical Implications of Alternative Models of Firm Dynamics," Journal of Economic Theory, Elsevier, vol. 79(1), pages 1-45, March.
  14. Bottazzi, Giulio & Secchi, Angelo, 2003. "Why are distributions of firm growth rates tent-shaped?," Economics Letters, Elsevier, vol. 80(3), pages 415-420, September.
  15. Giulio Bottazzi & Elena Cefis & Giovanni Dosi & Angelo Secchi, 2003. "Invariances and Diversities in the Evolution of Manufacturing Industries," LEM Papers Series 2003/21, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  16. 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.
  17. B. Verspagen & G. Silverberg, 2000. "Breaking the waves: a poisson regression approach to schumpeterian clustering of basic innovations," Working Papers 00.16, Eindhoven Center for Innovation Studies.
  18. 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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