Innovation and Corporate Dynamics: A Theoretical Framework

Jakub Growiec, Fabio Pammolli () and Massimo Riccaboni ()
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Massimo Riccaboni: IMT Institute of Advanced Studies, Lucca, Italy

Central European Journal of Economic Modelling and Econometrics, 2020, vol. 12, issue 1, 1-45

Abstract: We provide a detailed analysis of a unifying theoretical framework for innovation and corporate dynamics that encompasses the Gibrat’s Law of Proportionate Effect and the Simon growth process as particular instances. The predictions of the model are derived in terms of (i) firm size distribution, (ii) the distribution of firm growth rates, and (iii-iv) the relationships between firm size and the mean and variance of firm growth rates. We test the model against data from the worldwide pharmaceutical industry and find its predictions to be in good agreement with empirical evidence on all four dimensions. Our unifying stochastic framework can also be used to describe corporate dynamics in different industries and as a benchmark for discriminating among alternative data generating processes.

Keywords: business firm size; firm growth distribution; innovation; size-growth relationship; Pareto distribution (search for similar items in EconPapers)
JEL-codes: C49 L11 L25 L65 (search for similar items in EconPapers)
Date: 2020
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Related works:
Working Paper: Innovation and Corporate Dynamics: A Theoretical Framework (2011)
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