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Innovation and Corporate Dynamics: A Theoretical Framework

  • Jakub Growiec
  • Fabio Pammolli
  • Massimo Riccaboni

We provide a detailed analysis of a model of innovation and corporate dynamics that encompasses the Gibrat's Law of Proportionate Effect and the Simon growth process as particular instances. The predictions of the model are derived in terms of (i) firm size distribution, (ii) the distribution of firm growth rates, and (iii-iv) the relationships between firm size and the mean and variance of firm growth rates. We test the model against data from the worldwide pharmaceutical industry and find its predictions to be in good agreement with empirical evidence on all four dimensions.

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Paper provided by Department of Computer and Management Sciences, University of Trento, Italy in its series DISA Working Papers with number 2011/08.

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Length: 52 pages
Date of creation: Aug 2011
Date of revision: 29 Jul 2011
Handle: RePEc:trt:disawp:2011/08
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