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Analyzing the Distributions of the Stochastic Firm Growth Approach

  • Toke Reichstein
  • Morten Berg Jensen

Recently there has been a renewed interest in the study of firm size distributions and firm growth rate distributions. The stochastic firm growth approach builds on the assumption that firm growth rates are independent identically distributed and size is determined by a first order autoregressive process leaving the size distribution log-normal. This paper analyzes these distributional patterns in an empirical context questioning the foundation of the stochastic growth approach. In a cross section analysis of four industries using Danish data it is shown that the foundation for and the outcome of the stochastic firm growth process as it has so far been conceived are empirically far-fetched. In particular significant deviations from normality are found with respect to third and fourth moments.

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Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number 03-12.

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Date of creation: 2003
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Handle: RePEc:aal:abbswp:03-12
Contact details of provider: Web page: http://www.druid.dk/

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  1. 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.
  2. Evans, David S., 1986. "Tests of Alternative Theories of Firm Growth," Working Papers 86-36, C.V. Starr Center for Applied Economics, New York University.
  3. Bronwyn H. Hall, 1986. "The Relationship Between Firm Size and Firm Growth in the U.S. Manufacturing Sector," NBER Working Papers 1965, National Bureau of Economic Research, Inc.
  4. Hart, Peter E & Oulton, Nicholas, 1996. "Growth and Size of Firms," Economic Journal, Royal Economic Society, vol. 106(438), pages 1242-52, September.
  5. Bottazzi, Giulio & Dosi, Giovanni & Lippi, Marco & Pammolli, Fabio & Riccaboni, Massimo, 2001. "Innovation and corporate growth in the evolution of the drug industry," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1161-1187, July.
  6. Giulio Bottazzi & Angelo Secchi, 2002. "On the Laplace Distribution of Firms Growth Rates," LEM Papers Series 2002/20, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  7. Brock, W A, 1999. "Scaling in Economics: A Reader's Guide," Industrial and Corporate Change, Oxford University Press, vol. 8(3), pages 409-46, September.
  8. Geroski, Paul A, 1999. "The Growth of Firms in Theory and in Practice," CEPR Discussion Papers 2092, C.E.P.R. Discussion Papers.
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