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Explaining the distribution of firm growth rates
Author(s) -
Bottazzi Giulio,
Secchi Angelo
Publication year - 2006
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2006.tb00014.x
Subject(s) - limiting , infinity , econometrics , distribution (mathematics) , exponential growth , exponential function , exponential distribution , economics , empirical evidence , asymptotic distribution , mathematics , statistics , mathematical analysis , engineering , mechanical engineering , philosophy , epistemology , estimator
Empirical analyses on aggregated datasets have revealed a common exponential behavior in the shape of the probability density of corporate growth rates. We present clear‐cut evidence on this topic using disaggregated data. We explain the observed regularities proposing a model in which firms' ability to take 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 .