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Power Law Distribution of the Frequency of Demises of U.S Firms

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  • William Cook
  • Paul Ormerod

Abstract

Both theoretical and applied economics have a great deal to say about many aspects of the firm, but the literature on the extinctions, or demises, of firms is very sparse. We use a publicly available data base covering some 6 million firms in the US and show that the underlying statistical distribution which characterises the frequency of firm demises - the disappearances of firms as autonomous entities - is closely approximated by a power law. The exponent of the power law is, intriguingly, close to that reported in the literature on the extinction of biological species.

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  • William Cook & Paul Ormerod, 2002. "Power Law Distribution of the Frequency of Demises of U.S Firms," Papers cond-mat/0212186, arXiv.org.
    • Handle: RePEc:arx:papers:cond-mat/0212186
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    1. repec:nsr:niesrd:77 is not listed on IDEAS
    2. S. V. Buldyrev & L. A. N. Amaral & S. Havlin & H. Leschhorn & P. Maass & M. A. Salinger & H. E. Stanley & M. H. R. Stanley, 1997. "Scaling behavior in economics: II. Modeling of company growth," Papers cond-mat/9702085, arXiv.org.
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    1. Rational short-termism
      by chris dillow in Stumbling and Mumbling on 2013-03-06 20:23:55

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    Cited by:

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    2. Wright, Ian, 2005. "The social architecture of capitalism," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 346(3), pages 589-620.
    3. Nick Forster, 2010. "Exposing the Contradictory Claims, Myths and Illusions of the “Secrets of Business Success and Company Longevity†Genre," Vision, , vol. 14(3), pages 141-161, July.
    4. Lavička, H. & Lin, L. & Novotný, J., 2010. "Employment, Production and Consumption model: Patterns of phase transitions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(8), pages 1708-1720.
    5. Bridget Rosewell & Paul Ormerod, 2004. "How much can firms know?," Computing in Economics and Finance 2004 44, Society for Computational Economics.
    6. Coad, Alex, 2010. "Investigating the exponential age distribution of firms," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-30.
    7. Guilmi, Corrado Di & Gallegati, Mauro & Ormerod, Paul, 2004. "Scaling invariant distributions of firms’ exit in OECD countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 334(1), pages 267-273.
    8. Camila C.S. Caiado & Paul Ormerod, 2012. "The structure of economic connections between industries: non-scaling behaviour," International Journal of Complexity in Leadership and Management, Inderscience Enterprises Ltd, vol. 2(1/2), pages 39-51.
    9. Kočišová, J. & Horváth, D. & Brutovský, B., 2009. "The efficiency of individual optimization in the conditions of competitive growth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(17), pages 3585-3592.

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