Are There Any Empirical Regularities of Firms' Growth Patterns? The importance of large jumps

         
Author Name ARATA Yoshiyuki (Fellow, RIETI)
Creation Date/NO. June 2014 14-E-033
Research Project Issues Faced by Japan's Economy and Economic Policy Part III: Heterogeneity among economic agents
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Revised: March 2017

Abstract

Recent studies have revealed that the distribution of firms' growth rates is not Gaussian, but follows a Laplace distribution. This paper explores firms' growth patterns behind this Laplace shape. Using the theory of Lévy processes and infinitely divisible distributions, we show that the growth process is predominantly determined by a few large jumps rather than continuous movements. Namely, firm growth is achieved by a few radical innovations rather than an accumulation of small successes. The observed Laplace distribution reflects this property.