Understanding the implications of empirical work on corporate growth rates

Abstract

AbstractThis paper builds on the empirical literature on corporate growth rates — which suggests that corporate growth rates are very nearly random — and asks whether this empirical work is consistent with standard theories of the firm. We examine both static and dynamic optimizing models of firm output choice, before moving on to examine production functions modelling of corporate learning, models of R&D competition and diversification. In all cases, it seems clear that random corporate growth rates are more or less exactly what one would expect these models to predict. However, the literature on Penrose effects — dynamic managerial limitations to growth — and corporate competencies are not easy to reconcile with random corporate growth rates. Copyright © 2005 John Wiley & Sons, Ltd.