On size and growth of business firms

Abstract

We study size and growth distributions of products and business firms in the context of a given industry. Firm size growth is analyzed in terms of two basic mechanisms, i.e. the increase of the number of new elementary business units and their size growth. We find a power-law relationship between size and the variance of growth rates for both firms and products, with an exponent between -0.17 and -0.15, with a remarkable stability upon aggregation. We then introduce a simple and general model of proportional growth for both the number of firm independent constituent units and their size, which conveys a good representation of the empirical evidences. This general and plausible generative process can account for the observed scaling in a wide variety of economic and industrial systems. Our findings contribute to shed light on the mechanisms that sustain economic growth in terms of the relationships between the size of economic entities and the number and size distribution of their elementary components.