IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v312y2002i3p577-590.html
   My bibliography  Save this article

The variance of firm growth rates: the ‘scaling’ puzzle

Author

Listed:
  • Sutton, John

Abstract

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.

Suggested Citation

  • Sutton, John, 2002. "The variance of firm growth rates: the ‘scaling’ puzzle," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 312(3), pages 577-590.
  • Handle: RePEc:eee:phsmap:v:312:y:2002:i:3:p:577-590
    DOI: 10.1016/S0378-4371(02)00852-X
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S037843710200852X
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
    2. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. University of Minnesota & Erzo G.J. Luttmer, 2007. "New Goods and the Size Distribution of Firms," 2007 Meeting Papers 266, Society for Economic Dynamics.
    2. Stanley, H.E. & Gabaix, Xavier & Gopikrishnan, Parameswaran & Plerou, Vasiliki, 2007. "Economic fluctuations and statistical physics: Quantifying extremely rare and less rare events in finance," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 286-301.
    3. Aoki, Masanao, 2008. "Thermodynamic limits of macroeconomic or financial models: One- and two-parameter Poisson-Dirichlet models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 66-84, January.
    4. Alviarez, Vanessa & Cravino, Javier & Levchenko, Andrei A., 2017. "The growth of multinational firms in the Great Recession," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 50-64.
    5. Thomas Lux, 2009. "Applications of Statistical Physics in Finance and Economics," Chapters,in: Handbook of Research on Complexity, chapter 9 Edward Elgar Publishing.
    6. Lux, Thomas, 2008. "Applications of statistical physics in finance and economics," Kiel Working Papers 1425, Kiel Institute for the World Economy (IfW).
    7. Cefis, Elena & Ciccarelli, Matteo & Orsenigo, Luigi, 2007. "Testing Gibrat's legacy: A Bayesian approach to study the growth of firms," Structural Change and Economic Dynamics, Elsevier, vol. 18(3), pages 348-369, September.
    8. Stanley, H.Eugene, 2003. "Statistical physics and economic fluctuations: do outliers exist?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 318(1), pages 279-292.
    9. Buldyrev, Sergey V. & Salinger, Michael A. & Stanley, H. Eugene, 2016. "A statistical physics implementation of Coase׳s theory of the firm," Research in Economics, Elsevier, vol. 70(4), pages 536-557.
    10. Masanao Aoki & Hiroshi Yoshikawa, 2007. "Non-Self-Averaging in Macroeconomic Models: A Criticism of Modern Micro-founded Macroeconomics," CIRJE F-Series CIRJE-F-493, CIRJE, Faculty of Economics, University of Tokyo.
    11. Cornelia Metzig & Mirta B. Gordon, 2013. "A Model for Scaling in Firms' Size and Growth Rate Distribution," Papers 1304.4311, arXiv.org, revised Nov 2013.
    12. Daniela MAGGIONI & Alessia LO TURCO & Mauro GALLEGATI, 2014. "Does export complexity matter for firms' output volatility?," Working Papers 407, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    13. Şeker, Murat, 2012. "A structural model of firm and industry evolution: Evidence from Chile," Journal of Economic Dynamics and Control, Elsevier, vol. 36(6), pages 891-913.
    14. Stanley, H. Eugene & Plerou, Vasiliki & Gabaix, Xavier, 2008. "A statistical physics view of financial fluctuations: Evidence for scaling and universality," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(15), pages 3967-3981.
    15. James Christopher Westland & Jin Xing Hao & Xinping Xiao & Siqing Shan, 2016. "Substitutes, Complements and Network Effects in Instant Messaging Services," Networks and Spatial Economics, Springer, vol. 16(2), pages 525-543, June.
    16. Tai-Young Kim & Jeroen G. Kuilman, 2013. "The Demography of Resources," Journal of Management Studies, Wiley Blackwell, vol. 50(7), pages 1155-1184, November.
    17. Manas, Arnaud, 2012. "The Laplace illusion," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(15), pages 3963-3970.
    18. Thomas Lux, 2006. "Applications of Statistical Physics in Finance and Economics," Working Papers wpn06-07, Warwick Business School, Finance Group.
    19. Metzig, Cornelia & Gordon, Mirta B., 2014. "A model for scaling in firms’ size and growth rate distribution," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 398(C), pages 264-279.
    20. Alex Coad, 2008. "Firm growth and scaling of growth rate variance in multiplant firms," Economics Bulletin, AccessEcon, vol. 12(9), pages 1-15.
    21. Masanao Aoki, 2006. "Growth Patterns of Two Types of Macro-Models: Limiting Behavior of One-and Two-Parameter Poisson-Dirichlet Models," CIRJE F-Series CIRJE-F-446, CIRJE, Faculty of Economics, University of Tokyo.
    22. Maggioni, Daniela & Lo Turco, Alessia & Gallegati, Mauro, 2016. "Does product complexity matter for firms' output volatility?," Journal of Development Economics, Elsevier, vol. 121(C), pages 94-109.
    23. Manas, Arnaud, 2009. "French butchers don't do quantum physics," Economics Letters, Elsevier, vol. 103(2), pages 101-106, May.
    24. repec:spr:scient:v:60:y:2004:i:3:d:10.1023_b:scie.0000034374.79769.ed is not listed on IDEAS

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:phsmap:v:312:y:2002:i:3:p:577-590. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.