A Survey of Theories and Empirical Evidence
Chapter 3: Growth Rates Distributions
3. Growth rate distributions The previous chapter presented one of the oldest and best-known empirical regularities in industrial organization – the skewed firm size distribution. In this chapter, we focus on the growth rate distribution. Regularities in the distribution of firm growth rates were discovered only recently, a little over ten years ago, but the characteristic ‘tent-shaped’ distribution has been observed in a wide variety of databases and appears to be a remarkably robust feature of firm growth and industrial dynamics. We begin this chapter by surveying the empirical literature investigating the distribution of firm growth rates (section 3.1) before moving on to some theoretical models that attempt to explain the emergence of the observed distribution (section 3.2). 3.1 GROWTH RATE DISTRIBUTIONS It has long been suspected that the distribution of firm growth rates is fat-tailed. In an early contribution, Ashton (1926) considers the growth patterns of British textile firms and observes that ‘In their growth they obey no one law. A few apparently undergo a steady expansion . . . With others, increase in size takes place by a sudden leap’ (Ashton, 1926, pp. 572–3). Little (1962) investigates the distribution of growth rates, and also finds that the distribution is fat-tailed. Similarly, Geroski and Gugler (2004) compare the distribution of growth rates to the normal case and comment on the fat-tailed nature of the empirical density. Recent empirical research, from an ‘econophysics’ background, has discovered that the distribution of firm growth rates closely follows the parametric form of the Laplace density. Using...
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