The Growth of Business Firms: Theoretical Framework and Empirical Evidence

Proceedings of the National Academy of Sciences, Vol. 102, No. 52, pp. 18801-18806, 2008

Posted: 21 Nov 2007 Last revised: 14 Aug 2009

See all articles by Dongfeng Fu

Dongfeng Fu

Boston University - Department of Physics

Fabio Pammolli

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering; CERM Foundation

Sergey Buldyrev

Yeshiva University - Department of Physics

Massimo Riccaboni

KU Leuven - Department of Managerial Economics, Strategy, and Innovation; IMT Institute for Advanced Studies

H. Eugene Stanley

Boston University - Center for Polymer Studies

Kaushik Matia

Boston University - Department of Physics

Kazuko Yamasaki

Tokyo University of Information Sciences

Abstract

We introduce a model of proportional growth to explain the distribution Pg(g) of business-firm growth rates. The model predicts that Pg(g) is exponential in the central part and depicts an asymptotic power-law behavior in the tails with an exponent z=3. Because of data limitations, previous studies in this field have been focusing exclusively on the Laplace shape of the body of the distribution. In this article, we test the model at different levels of aggregation in the economy, from products to firms to countries, and we find that the predictions of the model agree with empirical growth distributions and size-variance relationships.

Keywords: proportional growth, preferential attachment, Laplace distribution

Suggested Citation

Fu, Dongfeng and Pammolli, Fabio and Buldyrev, Sergey and Riccaboni, Massimo and Stanley, H. Eugene and Matia, Kaushik and Yamasaki, Kazuko, The Growth of Business Firms: Theoretical Framework and Empirical Evidence. Available at SSRN: https://ssrn.com/abstract=1031694

Dongfeng Fu (Contact Author)

Boston University - Department of Physics ( email )

590 Commonwealth Avenue
Boston, MA 02215
United States

Fabio Pammolli

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering ( email )

Via Lambruschini 4C - building 26/A
Milano, 20156
Italy

CERM Foundation ( email )

Via Fiorentina, 1
Siena, Siena 53100
Italy

HOME PAGE: http://www.cermlab.it

Sergey Buldyrev

Yeshiva University - Department of Physics ( email )

500 West, 185th Street
New York, NY 10033
United States

Massimo Riccaboni

KU Leuven - Department of Managerial Economics, Strategy, and Innovation ( email )

Naamsestraat 69 bus 3500
Leuven, 3000
Belgium

IMT Institute for Advanced Studies ( email )

Complesso San Micheletto
Lucca, 55100
Italy

H. Eugene Stanley

Boston University - Center for Polymer Studies ( email )

Boston, MA 02215
United States

Kaushik Matia

Boston University - Department of Physics ( email )

590 Commonwealth Avenue
Boston, MA 02215
United States

Kazuko Yamasaki

Tokyo University of Information Sciences ( email )

Tokyo
Japan

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