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Explaining the Distribution of Firms Growth Rates

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  • Giulio Bottazzi
  • Angelo Secchi

Abstract

Empirical analyses on aggregated datasets have revealed a common exponential behavior in the shape of the probability density of the corporate growth rates. We present clearcut evidence on this topic using disaggregated data. We explain the observed regularities proposing a model in which the firmsÂ’ ability of taking up new business opportunities increases with the number of opportunities already exploited. A theoretical result is presented for the limiting case in which the number of firms and opportunities go to infinity. Moreover, using simulations, we show that even in a small industry the agreement with asymptotic results is almost complete.

Suggested Citation

  • Giulio Bottazzi & Angelo Secchi, 2005. "Explaining the Distribution of Firms Growth Rates," LEM Papers Series 2005/16, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  • Handle: RePEc:ssa:lemwps:2005/16
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    References listed on IDEAS

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    Keywords

    Firm Growth; Laplace Distribution; Urn Processes;
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