The variance of firm growth rates: the ‘scaling’ puzzle
Recent evidence suggests that a power-law relationship exists between a firm's size and the variance of its growth rate. The flatness of the relation is regarded as puzzling, in that it suggests that large firms are not much more stable than small firms. It has been suggested that the power-law nature of the relationship reflects the presence of some form of correlation of growth rates across the firm's constituent businesses. Here, it is shown that a model of independent businesses which allows for the fact that these businesses vary in size, as modelled by a simple ‘partitions of integers’ model, provides a good representation of what is observed empirically.
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Volume (Year): 312 (2002)
Issue (Month): 3 ()
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- 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.
- John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
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