TY - JOUR
T1 - Firms as bundles of discrete resources - Towards an explanation of the exponential distribution of firm growth rates
AU - Coad, Alex
AU - Planck, Max
N1 - Copyright:
Copyright 2012 Elsevier B.V., All rights reserved.
PY - 2012/3
Y1 - 2012/3
N2 - 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 come from, but rather we focus on how firms build upon growth opportunities. We base ourselves on Penrose's (1959) description of firm growth 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.
AB - 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 come from, but rather we focus on how firms build upon growth opportunities. We base ourselves on Penrose's (1959) description of firm growth 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.
KW - exponential distribution
KW - firm growth rates
KW - growth autocorrelation
KW - hierarchy
KW - laplace distribution
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U2 - 10.1057/eej.2010.67
DO - 10.1057/eej.2010.67
M3 - Article
AN - SCOPUS:84857287956
VL - 38
SP - 189
EP - 209
JO - Eastern Economic Journal
JF - Eastern Economic Journal
SN - 0094-5056
IS - 2
ER -