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Analyzing the Distributions of the Stochastic Firm Growth Approach

Toke Reichstein () and Morten Jensen

No 03-12, DRUID Working Papers from DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies

Abstract: Recently there has been a renewed interest in the study of firm size distributions and firm growth rate distributions. The stochastic firm growth approach builds on the assumption that firm growth rates are independent identically distributed and size is determined by a first order autoregressive process leaving the size distribution log-normal. This paper analyzes these distributional patterns in an empirical context questioning the foundation of the stochastic growth approach. In a cross section analysis of four industries using Danish data it is shown that the foundation for and the outcome of the stochastic firm growth process as it has so far been conceived are empirically far-fetched. In particular significant deviations from normality are found with respect to third and fourth moments.

Keywords: Firm Growth Rate and Size Distributions; Evolution of Industries (search for similar items in EconPapers)
JEL-codes: C14 L11 (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-ent and nep-ino
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