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Are Firm Growth Rates Random? Evidence from Japanese Small Firms

In: Practical Fruits of Econophysics

Author

Listed:
  • Yukiko Saito

    (Fujitsu Research Insitute)

  • Tsutomu Watanabe

    (Hitotsubashi University)

Abstract

Summary Anecdotal evidences suggest that a small number of firms continue to win until they finally acquire a big presence and monopolistic power in a market. To see whether such “winner-take-all” story is true or not, we look at the persistence of growth rates for Japanese small firms. Using a unique dataset covering half a million firms in each year of 1995–2003, we find the following. First, scale variables, such as total asset and sales, exhibit a divergence property: firms that have experienced positive growth in the preceding years are more likely to achieve positive growth again. Second, other variables that are more or less related to firm profitability exhibit a convergence property: firms with positive growth in the past are less likely to achieve positive growth again. These two evidences indicate that firm growth rates are not random but history dependent.

Suggested Citation

  • Yukiko Saito & Tsutomu Watanabe, 2006. "Are Firm Growth Rates Random? Evidence from Japanese Small Firms," Springer Books, in: Hideki Takayasu (ed.), Practical Fruits of Econophysics, pages 277-282, Springer.
    • Handle: RePEc:spr:sprchp:978-4-431-28915-9_50
    DOI: 10.1007/4-431-28915-1_50
    as

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