2009/10 | LEM Working Paper Series | |
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How Do Organizational Capabilities Shape Industry Dynamics ? |
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Marco Corsino, Roberto Gabriele, Enrico Zaninotto |
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Keywords | ||
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Organizational Capabilities; Firm Size Distribution; Growth Rates; Profitability
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JEL Classifications | ||
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C14, C63, D21, L25
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Abstract | ||
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This paper aims to reconcile the logic behind stochastic models of
firm growth and the notion of organizational capabilities as drivers
of economic performance. In the proposed behavioral model of bounded
rational firms, two mechanisms drive growth: independent stochastic
growth of individual opportunities and the process by which firms
capture new opportunities. To extend the stochastic framework, this
research incorporates behavioral assumptions about the interactions
between the firm and the business environment and the mechanism by
which firms sense and seize business opportunities. The model
generates statistical regularities in firm size, growth rates, and
profit differentials between firms that are consistent with observed
patterns in real-world settings. The greater the selective power of
organizational capabilities, the more the steady-state distribution of
firm size appears to deviate from log normality, which provides a
potential explanation of various observed departures from the Law of
Proportionate Effect. With regard to firm diversity, the distribution
of opportunities per firm is skewed; just a few entities account for
most of the business opportunities that arise during the simulation
period. Moreover, the interaction between the external environment and
the internal structure of firms influences heterogeneity in the value
of the opportunities that they capture, as well as the persistence of
long-run profits.
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