Economics at your fingertips  

Firm growth and Laplace distribution: The importance of large jumps

Yoshiyuki Arata

Journal of Economic Dynamics and Control, 2019, vol. 103, issue C, 63-82

Abstract: Recent empirical studies have shown that firm growth rate distribution is not Gaussian but closely follows a Laplace distribution. This robust feature of the growth rate distribution challenges existing models based on Gibrat’s model because it predicts a Gaussian distribution. First, we analyze more than 100,000 Japanese firms and empirically show that the Laplace shape can be observed for the Japanese firms. Then, by using the theory of stochastic processes, we theoretically show that the absence of jumps causes the discrepancy between Gibrat’s model and the Laplace shape. In particular, based on the Laplace shape and the law of proportionate effect, we show that the firm growth process is a jump process. In other words, firm growth cannot be explained by the consequence of many small shocks but is determined by a few large jumps. The widely observed Laplace distribution reflects this jump property of firm growth dynamics.

Keywords: Firm growth; Gibrat’s model; Law of proportionate effect; Laplace distribution; Variance Gamma process (search for similar items in EconPapers)
JEL-codes: D21 D22 L10 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-08-17
Handle: RePEc:eee:dyncon:v:103:y:2019:i:c:p:63-82