Analisi dei modelli d’impresa: discontinuità e sviluppo

Analysing firm's evolution: discontinuity and growth

Enrico D'Elia, Leopoldo Nascia and Alessandro Zeli

MPRA Paper from University Library of Munich, Germany

Abstract: Typically, firms change their size through a row of discrete leaps over time. A very basic model allowing for discontinuous growth can be based on a couple of assumptions: (a) in the short run, the firm’s equipment and organization provide the maximum profit only for a given production level, and diverging form it is costly; and (b) in the long run, the firm adjusts its size as if the current equipment had to be exploited until overall profits exceed a given threshold and those expected from the new desired plant for the current production level. Combining the latter two hypotheses entails a number of testable consequences, usually regarded as nuisance facts according to the traditional theories. First of all, the profitability should not be a continuous function of the firms’ size, but exhibits a number of peaks, each corresponding to a different locally optimal size. Secondly, when demand is growing, investment are expected to increase just when profits falls shorter some given threshold. The model has been tested by using a panel of data on the size and performances of Italian manufacturing firms from 1998 to 2007. Indeed, both the non-parametric analysis and a panel estimation confirm the presence of several “peaks” in the distribution of profitability by size. Furthermore, a negative statistical relationship is apparent between investment and profitability, controlling for the size of firms.

Keywords: Capacity utilization; Discontinuity; Firm’s size; Growth; Investment; Non parametric smoothing; Panel regression; Profit function (search for similar items in EconPapers)
JEL-codes: D21 D92 L11 (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-bec
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