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Risk, variety and volatility: growth, innovation and stock prices in early industry evolution

In: Entrepreneurships, the New Economy and Public Policy

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  • Mariana Mazzucato

    (The Open University)

Abstract

The paper studies the patterns of volatility in firm growth rates and stock prices during the early phase of the life-cycle of an old economy industry, the US automobile industry from 1900–1930, and a new economy industry, the US PC industry from 1974–2000. In both industries, firm growth rates are more volatile in the period in which innovation is the most “radical”. This is also the period in which stock prices are more volatile. The comparison sheds light on the co-evolution of industrial and financial volatility and the relationship between this co-evolution and mechanisms of Schumpetarian creative destruction. Results provide insight into the debate on whether the statistical behavior of firm growth rates is well represented by Gibrat’s Law.

Suggested Citation

  • Mariana Mazzucato, 2005. "Risk, variety and volatility: growth, innovation and stock prices in early industry evolution," Springer Books, in: Uwe Cantner & Elias Dinopoulos & Robert F. Lanzillotti (ed.), Entrepreneurships, the New Economy and Public Policy, pages 33-54, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-26994-6_4
    DOI: 10.1007/3-540-26994-0_4
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    Cited by:

    1. J. Krafft & J. -L. Ravix, 2008. "Corporate Governance And The Governance Of Knowledge: Rethinking The Relationship In Terms Of Corporate Coherence," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(1-2), pages 79-95.
    2. Mary J. Benner, 2010. "Securities Analysts and Incumbent Response to Radical Technological Change: Evidence from Digital Photography and Internet Telephony," Organization Science, INFORMS, vol. 21(1), pages 42-62, February.
    3. Alessandro Caiani & Antoine Godin & Stefano Lucarelli, 2012. "Innovation and Finance: An SFC Analysis of Great Surges of Development," Economics Working Paper Archive wp_733, Levy Economics Institute.
    4. Jackie Krafft & Jacques-Laurent Ravix, 2005. "The governance of innovative firms: an evolutionary approach," Post-Print hal-00203620, HAL.
    5. Mariana Mazzucato & Massimiliano Tancioni, 2005. "Innovation and Idiosyncratic Risk," Computing in Economics and Finance 2005 81, Society for Computational Economics.
    6. BokHyun Lee, 2018. "The Relationship between Technology Life Cycle and Korean Stock Market Performance," IJFS, MDPI, vol. 6(4), pages 1-22, October.
    7. Alessandro Caiani & Antoine Godin & Stefano Lucarelli, 2015. "Innovation and Finance: A Stock Flow Consistent Analysis of Great Surges of Development," Economic Complexity and Evolution, in: Andreas Pyka & John Foster (ed.), The Evolution of Economic and Innovation Systems, edition 127, pages 401-430, Springer.
    8. Omar Alsinglawi & Mohammad Aladwan, 2018. "The Effect of Invisible Intangibles on Volatility of Stock Prices," Modern Applied Science, Canadian Center of Science and Education, vol. 12(11), pages 290-290, November.
    9. Mata, José & Woerter, Martin, 2013. "Risky innovation: The impact of internal and external R&D strategies upon the distribution of returns," Research Policy, Elsevier, vol. 42(2), pages 495-501.
    10. Kathryn Rudie Harrigan & Maria Chiara Guardo & Elona Marku, 2018. "Patent value and the Tobin’s q ratio in media services," The Journal of Technology Transfer, Springer, vol. 43(1), pages 1-19, February.
    11. Mariana Mazzucato, 2006. "Innovation and Stock Prices: a Review of some Recent Work," Revue de l'OFCE, Presses de Sciences-Po, vol. 97(5), pages 159-179.
    12. Jorge Niosi & Suma Athreye & Ted Tschang, 2012. "The Global Computer Software Sector," Chapters, in: Franco Malerba & Richard R. Nelson (ed.), Economic Development as a Learning Process, chapter 3, Edward Elgar Publishing.
    13. Marwil J. Dávila-Fernández & Lionello F. Punzo, 2018. "A Multi-Sectoral Approach to Financialisation," Department of Economics University of Siena 794, Department of Economics, University of Siena.

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