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Firms as bundles of discrete resources - towards an explanation of the exponential distribution of firm growth rates

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Abstract

A robust feature of the corporate growth process is the Laplace, or symmetric exponential, distribution of firm growth rates. In this paper, we sketch out a class of simple theoretical models capable of explaining this empirical regularity. We do not attempt to generalize on where growth opportunities comme from, but rather we focus on how firms build upon growth opportunites. We borrow ideas from the self-organizing criticality literature to explain how the interdependent nature of discrete resources may lead to the triggering off of a series of additions to a firm's resources. In a first formal model we consider the case of employment growth in a hierarchy, and observe that growth rates follow an exponential distribution. In a second model we include plant and capital as resources and we are able to reproduce a number of stylized facts about firm growth

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  • Alex Coad, 2008. "Firms as bundles of discrete resources - towards an explanation of the exponential distribution of firm growth rates," Documents de travail du Centre d'Economie de la Sorbonne r08055, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:r08055
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    1. Giulio Bottazzi & Alex Coad & Nadia Jacoby & Angelo Secchi, 2011. "Corporate growth and industrial dynamics: evidence from French manufacturing," Applied Economics, Taylor & Francis Journals, vol. 43(1), pages 103-116.
    2. David J. TEECE, 2008. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," World Scientific Book Chapters, in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 5, pages 67-87, World Scientific Publishing Co. Pte. Ltd..
    3. Bottazzi, Giulio & Dosi, Giovanni & Lippi, Marco & Pammolli, Fabio & Riccaboni, Massimo, 2001. "Innovation and corporate growth in the evolution of the drug industry," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1161-1187, July.
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    6. Alex Coad, 2006. "Understanding the processes of firm growth - a closer look at serial growth rate correlation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00118801, HAL.
    7. Nunes Amaral, Luís A & Buldyrev, Sergey V & Havlin, Shlomo & Maass, Philipp & Salinger, Michael A & Eugene Stanley, H & Stanley, Michael H.R, 1997. "Scaling behavior in economics: The problem of quantifying company growth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 244(1), pages 1-24.
    8. Giulio Bottazzi & Angelo Secchi, 2006. "Explaining the distribution of firm growth rates," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 235-256, June.
    9. Alex Coad, 2007. "A Closer Look at Serial Growth Rate Correlation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(1), pages 69-82, August.
    10. Toke Reichstein & Morten Berg Jensen, 2005. "Firm size and firm growth rate distributions--The case of Denmark," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 14(6), pages 1145-1166, December.
    11. Bottazzi, Giulio & Secchi, Angelo, 2003. "A stochastic model of firm growth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 213-219.
    12. Michael T. Hannan, 2005. "Ecologies of Organizations: Diversity and Identity," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 51-70, Winter.
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    14. Joao Pedro Azevedo, 2004. "GRQREG: Stata module to graph the coefficients of a quantile regression," Statistical Software Components S437001, Boston College Department of Economics, revised 17 Mar 2011.
    15. G. Bottazzi & E. Cefis & G. Dosi & A. Secchi, 2007. "Invariances and Diversities in the Patterns of Industrial Evolution: Some Evidence from Italian Manufacturing Industries," Small Business Economics, Springer, vol. 29(1), pages 137-159, June.
    16. Martha S. Feldman, 2004. "Resources in Emerging Structures and Processes of Change," Organization Science, INFORMS, vol. 15(3), pages 295-309, June.
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    Cited by:

    1. Alex Coad & Sven-Olov Daunfeldt & Daniel Halvarsson, 2018. "Bursting into life: firm growth and growth persistence by age," Small Business Economics, Springer, vol. 50(1), pages 55-75, January.
    2. Alex Coad & Sven-Olov Daunfeldt & Daniel Halvarsson, 2022. "Amundsen versus Scott: are growth paths related to firm performance?," Small Business Economics, Springer, vol. 59(2), pages 593-610, August.
    3. Alex Coad & Stjepan Srhoj, 2020. "Catching Gazelles with a Lasso: Big data techniques for the prediction of high-growth firms," Small Business Economics, Springer, vol. 55(3), pages 541-565, October.
    4. Ho-Chang Chae, 2024. "In search of gazelles: machine learning prediction for Korean high-growth firms," Small Business Economics, Springer, vol. 62(1), pages 243-284, January.
    5. Alex Coad, 2022. "Lumps, Bumps and Jumps in the Firm Growth Process," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 18(4), pages 212-267, April.
    6. David Vidal-Tomás & Alba Ruiz-Buforn & Omar Blanco-Arroyo & Simone Alfarano, 2022. "A Cross-Sectional Analysis of Growth and Profit Rate Distribution: The Spanish Case," Mathematics, MDPI, vol. 10(6), pages 1-20, March.

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    More about this item

    Keywords

    Firm growth rates; exponential distribution; hierarchy; growth autocorrelation;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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