Does classical competition explain the statistical features of firm growth?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. AbstractWe express the idea of classical competition in a statistical equilibrium model, where the tendency for competition to equalize profit rates results in an exponential power (or Subbotin) distribution. The model supports and extends recent evidence on the Laplace distribution of growth rates in firm size. We also find tent-shaped distributions in the size growth rates of Forbes Global 2000 companies, which we interpret as preliminary evidence in favor of the hypothesis that classical competition is a globally operating mechanism.

A statistichal equilibrium perspective on corporate profitability

“…First, it reproduces the empirical distribution of profit rates that is markedly non-Gaussian but approximately follows the Laplace distribution (see e.g. Alfarano and Milaković, 2008;Alfarano et al, 2013;Scharfenaker and Semieniuk, 2016), implying that small deviations around the mean and extreme events occur more often than in the case of a normal distribution. Second, the model is also consistent with the autocorrelation structure of the data that exhibit an (asymptotic) exponential decay, i.e.…”

“…Profit rates have nevertheless been studied in the context of the so-called persistence of profits literature that starts with Mueller (1977) (see, e.g., Cuaresma and Gschwandtner, 2006, for a more recent take on the subject), and more recently also in the context of a statistical equilibrium framework Alfarano and Milaković (2008) and Alfarano et al (2012Alfarano et al ( , 2013) that will guide our present investigation. 23…”

“…Interestingly, the empirical densities of both profit and growth rates are well described by exponential power or Subbotin distributions (see, e.g., Alfarano and Milaković, 2008;Alfarano et al, 2013;Bottazzi and Secchi, 2006;Bottazzi et al, 2001Bottazzi et al, , 2002Stanley et al, 1996, for growth rate distributions), often approximating a special case of the Subbotin distribution known as the Laplace distribution. In our experience, the similarity in the functional form of the cross-sectional distribution of profit and growth rates frequently evokes claims that the two quantities essentially measure the same thing and can be used interchangeably.…”

“…In this paper, I employ the statistical equilibrium methodology that has recently been introduced by Alfarano and Milaković (2008) and Alfarano et al (2012), and extend the scope of its relevance by examining the forecasting power of this approach on ROA. The model presumes that profitability is subject to ergodicity conditional on survival, i.e.…”

“…Alfarano and Milaković (2008) encode the complex movements of capital in search of profit rate equalization into a moment constraint to derive the maximum entropy distribution of the rate of profit. This stationary distribution characterizes the cross-sectional distribution of states in equilibrium and is given by the Laplace which is parsimoniously described by a location and a dispersion parameter.…”