Do Pareto–Zipf and Gibrat laws hold true? An analysis with European firms

Yoshi Fujiwara, Corrado Di Guilmi, Hideaki Aoyama, Mauro Gallegati and Wataru Souma

Physica A: Statistical Mechanics and its Applications, 2004, vol. 335, issue 1, 197-216

Abstract: By employing exhaustive lists of large firms in European countries, we show that the upper-tail of the distribution of firm size can be fitted with a power-law (Pareto–Zipf law), and that in this region the growth rate of each firm is independent of the firm's size (Gibrat's law of proportionate effect). We also find that detailed balance holds in the large-size region for periods we investigated; the empirical probability for a firm to change its size from a value to another is statistically the same as that for its reverse process. We prove several relationships among Pareto–Zipf's law, Gibrat's law and the condition of detailed balance. As a consequence, we show that the distribution of growth rate possesses a non-trivial relation between the positive side of the distribution and the negative side, through the value of Pareto index, as is confirmed empirically.

Keywords: Pareto–Zipf law; Gibrat law; Firm growth; Detailed balance; Econophysics (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (96)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:335:y:2004:i:1:p:197-216

DOI: 10.1016/j.physa.2003.12.015

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