Gibrat’s Law and diversification

This article presents an analysis of the growth patterns of the worldwide top 200 firms in the pharmaceutical industry. A test of the Gibrat’s Law of Proportionate Effect is performed and we find, in line with previous literature, a violation concerning the variance of growth. Using disaggregated da...

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Veröffentlicht in:Industrial and corporate change 2006-10, Vol.15 (5), p.847-875
Hauptverfasser: Bottazzi, Giulio, Secchi, Angelo
Format: Artikel
Sprache:eng
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Zusammenfassung:This article presents an analysis of the growth patterns of the worldwide top 200 firms in the pharmaceutical industry. A test of the Gibrat’s Law of Proportionate Effect is performed and we find, in line with previous literature, a violation concerning the variance of growth. Using disaggregated data on sub-markets, we are however able to show that this violation can be completely accounted for by a diversification effect, namely a scale relation between the number of sub-markets in which a firm is active and its size. To interpret these findings, we propose a stochastic branching model of firm diversification consistent with a notion of cumulative corporate competences.
ISSN:0960-6491
1464-3650
DOI:10.1093/icc/dtl019