The variance of firm growth rates: the ‘scaling’ puzzle

John Sutton

Physica A: Statistical Mechanics and its Applications, 2002, vol. 312, issue 3, 577-590

Abstract: Recent evidence suggests that a power-law relationship exists between a firm's size and the variance of its growth rate. The flatness of the relation is regarded as puzzling, in that it suggests that large firms are not much more stable than small firms. It has been suggested that the power-law nature of the relationship reflects the presence of some form of correlation of growth rates across the firm's constituent businesses. Here, it is shown that a model of independent businesses which allows for the fact that these businesses vary in size, as modelled by a simple ‘partitions of integers’ model, provides a good representation of what is observed empirically.

Keywords: Size distribution; Scaling; Power law; Partitions; Corporate growth (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:312:y:2002:i:3:p:577-590

DOI: 10.1016/S0378-4371(02)00852-X

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