2005/16 LEM Working Paper Series

Explaining the Distribution of Firms Growth Rates

Giulio Bottazzi, Angelo Secchi
Firm Growth, Laplace Distribution, Urn Processes.

  JEL Classifications
L1, C1, D2.

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 firmsí 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.

This paper can be considered in many respects an improved version of WP LEM 2002-14 G. Bottazzi, A. Secchi "On The Laplace Distribution of Firms Growth Rates". We present a new the description of the empirical results and we try to provide better justification for the theoretical assumptions constituting the base of our analysis. In the present version we introduce a new more general version of the main theorem that helps to clarify the assumption about micro-shocks distribution, the nature of the considered limits and the nature of the observed convergence. Since the present version lacks several analyses that were performed in the aforementioned paper we decided to add the present work as a new working paper rather than a replacement of the previous one.

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