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Innovation and Corporate Dynamics: A Theoretical Framework

Author

Listed:
  • Jakub Growiec

    (Department of Quantitative Economics, SGH Warsaw School of Economics, Poland)

  • Fabio Pammolli

    (Department of Management, Economics, and Industrial Engineering, Politecnico di Milano, Italy)

  • Massimo Riccaboni

    (IMT Institute of Advanced Studies, Lucca, Italy)

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.

Suggested Citation

  • Jakub Growiec & Fabio Pammolli & Massimo Riccaboni, 2020. "Innovation and Corporate Dynamics: A Theoretical Framework," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 12(1), pages 1-45, March.
    • Handle: RePEc:psc:journl:v:12:y:2020:i:1:p:1-45
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    References listed on IDEAS

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    Cited by:

    1. Williams, Michael A. & Pinto, Brijesh P. & Park, David, 2015. "Global evidence on the distribution of firm growth rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 432(C), pages 102-107.
    2. David Vidal-Tomás & Alba Ruiz-Buforn & Omar Blanco-Arroyo & Simone Alfarano, 2022. "A Cross-Sectional Analysis of Growth and Profit Rate Distribution: The Spanish Case," Mathematics, MDPI, vol. 10(6), pages 1-20, March.
    3. Williams, Michael A. & Baek, Grace & Li, Yiyang & Park, Leslie Y. & Zhao, Wei, 2017. "Global evidence on the distribution of GDP growth rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 468(C), pages 750-758.

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    More about this item

    Keywords

    business firm size; firm growth distribution; innovation; size-growth relationship; Pareto distribution;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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