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Analyzing the Distributions of the Stochastic Firm Growth Approach

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  • Toke Reichstein
  • Morten Berg Jensen

Abstract

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.

Suggested Citation

  • Toke Reichstein & Morten Berg Jensen, 2003. "Analyzing the Distributions of the Stochastic Firm Growth Approach," DRUID Working Papers 03-12, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    • Handle: RePEc:aal:abbswp:03-12
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    References listed on IDEAS

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    1. 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.
    2. 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.
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    6. 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 and the Associazione ICC, vol. 11(4), pages 705-723, August.
    7. Geroski, Paul A, 1999. "The Growth of Firms in Theory and in Practice," CEPR Discussion Papers 2092, C.E.P.R. Discussion Papers.
    8. Brock, W A, 1999. "Scaling in Economics: A Reader's Guide," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 8(3), pages 409-446, September.
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    10. Hart, Peter E & Oulton, Nicholas, 1996. "Growth and Size of Firms," Economic Journal, Royal Economic Society, vol. 106(438), pages 1242-1252, September.
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    Cited by:

    1. Orietta Marsili, 2006. "Stability and Turbulence in the Size Distribution of Firms: Evidence from Dutch Manufacturing," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(2), pages 255-272.

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    More about this item

    Keywords

    Firm Growth Rate and Size Distributions; Evolution of Industries;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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