Innovation and Corporate Dynamics: A Theoretical Framework

Massimo, Riccaboni and Jakub, Growiec and Fabio, Pammolli (2011): Innovation and Corporate Dynamics: A Theoretical Framework.

Abstract

We provide a detailed analysis of a generalized proportional growth model (GPGM) of 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Business firm size; firm growth distribution; Gibrat’s Law; Pareto distribution; lognormal distribution, size-variance relationship.
• Subjects: L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification, and Scope; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L65 - Chemicals ; Rubber ; Drugs ; Biotechnology; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C49 - Other

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