Firm Size and Growth Rate Variance: the Effects of Data Truncation

This paper discusses the effects of the existence of natural and/or exogenously imposed thresholds in firm size distributions, on estimations of the relation between firm size and variance in firm growth rates. We explain why the results in the literature on this relationship are not consistent. We argue that a natural threshold (0 number of employees or 0 total sales) and/or the existence of truncating thresholds in the dataset, can lead to upwardly biased estimations of the relation. We show the potential impact of the bias on simulated data, suggest a methodology to improve these estimations, and present an empirical analysis based on a comprehensive dataset of Dutch manufacturing and service firms. The only stable relation between firm size and growth rate variance is negative regardless of how we define the measure of firm growth.firm growth, growth rates variance; truncation; thresholds

On the approximation of mean densities of random closed sets

Many real phenomena may be modelled as random closed sets in $\mathbb{R}^d$, of different Hausdorff dimensions. In many real applications, such as fiber processes and $n$-facets of random tessellations of dimension $n\leq d$ in spaces of dimension $d\geq1$, several problems are related to the estimation of such mean densities. In order to confront such problems in the general setting of spatially inhomogeneous processes, we suggest and analyze an approximation of mean densities for sufficiently regular random closed sets. We show how some known results in literature follow as particular cases. A series of examples throughout the paper are provided to illustrate various relevant situations.Comment: Published in at http://dx.doi.org/10.3150/09-BEJ186 the Bernoulli (http://isi.cbs.nl/bernoulli/) by the International Statistical Institute/Bernoulli Society (http://isi.cbs.nl/BS/bshome.htm

Spatial differentiation in industrial dynamics A core-periphery analysis based on the Pavitt-Miozzo-Soete taxonomy

We compare the industrial dynamics in the core, semi-periphery and periphery in The Netherlands in terms of firm entry-exit, size, growth and sectoral location patterns. The contribution of our work is to provide the first comprehensive study on spatial differentiation in industrial dynamics for all firm sizes and all sectors, including services. We find that at the aggregate level the spatial pattern of industrial dynamics is consistent with the spatial product lifecycle thesis: entry and exit rates are highest in the core and lowest in the periphery, while the share of persistently growing firms is higher in the periphery than in the core. Disaggregating the analysis to the sectoral level following the Pavitt-Miozzo-Soete taxonomy, findings are less robust. Finally, sectoral location patterns are largely consistent with the spatial product lifecycle model: Fordist sectors are over-represented in the periphery, while sectors associated with the ICT paradigm are over-represented in the core, with the notable exception of science-based manufacturing.Entry, exit, spatial product lifecycle, Fordist paradigm, ICT paradigm

Framing the empirical findings on firm growth

This paper proposes a general framework to account for the divergent results in the empirical literature on the relation between firm sizes and growth rates, and on many results on growth autocorrelation. In particular, we provide an explanation for why traces of the LPE sometimes occur in conditional mean (i.e. OLS) autoregressions of firm size or firm growth, and in conditional median (i.e. least absolute deviation) autoregressions, but never in high or low quantile autoregressions. Based on an original empirical analysis of the population of manufacturing firms in the Netherlands between 1994 and 2004, we find that there is no peculiar role played by the median of the growth distribution, which is approximately equal to zero independent of firm size. In economic terms, this is equivalent to saying that most of the phenomena of interest for industrial dynamics can be studied without reference to the behaviour of the median firm, and many "average" relations retrieved in the literature, starting from the negative relation between average size and average growth, are driven by the few dynamic firms in the sample rather than the many stable ones. Moreover, we observe the tent shape of the empirical firm growth rate distribution and confirm the skewness-size and the variance-size relations. The identified quantile regression patterns - autoregressive coefficients above 1 for fast decliners, and below 1 for fast growers - can be obtained by assuming negative variance-size scaling and Laplace growth rate distributions, and are robust to a mild positive relationship between skewness and size. A relationship between quantile regression patterns and previous findings is therefore uncovered.Firm growth; Law of Proportionate Effect; quantile regression; heterogeneity; variance-size scaling.

Do some Firms Persistently Outperform?

This study analyses persistence in growth rates of the entire population of Dutch manufacturing firms. Previous literature on firm growth rates shows that extreme growth events are likely to be negatively correlated over time. A rebound effect following an extreme growth event questions the existence of persistent outperformers, indicated by a positive correlation over time. By supplementing the quantile regression analyses with transition probability matrices, our study shows that `bouncing' firms co-exist with persistent outperformers. This result is robust if we exclude firms involved in acquisitions or spin offs. Differentiating among different size classes, we find that the existence of persistent outperformers is especially pronounced in micro firms. We interpret this finding as supporting the notion of a Schumpeter Mark I regime, with small firms displaying strong heterogeneity in their growth patterns, versus a Schumpeter Mark II regime, with large firms displaying less heterogeneity of growth.firm growth; heterogeneity, persistence, transition probability matrices, quantile regression

Spatial Differentiation in Industrial Dynamics. A Core-Periphery Analysis Based on the Pavitt-Miozzo-Soete Taxonomy

We compare the industrial dynamics in the core, semi-periphery and periphery in The Netherlands in terms of firm entry-exit, size, growth and sectoral location patterns. The contribution of our work is to provide the first comprehensive study on spatial differentiation in industrial dynamics for all firm sizes and all sectors, including services. We find that at the aggregate level the spatial pattern of industrial dynamics is consistent with the spatial product lifecycle thesis: entry and exit rates are highest in the core and lowest in the periphery, while the share of persistently growing firms is higher in the periphery than in the core. Disaggregating the analysis to the sectoral level following the Pavitt-Miozzo-Soete taxonomy, findings are less robust. Finally, sectoral location patterns are largely consistent with the spatial product lifecycle model: Fordist sectors are over-represented in the periphery, while sectors associated with the ICT paradigm are over-represented in the core, with the notable exception of science-based manufacturing.Entry, exit, spatial product lifecycle, Fordist paradigm, ICT paradigm

SPATIAL DIFFERENTIATION IN INDUSTRIAL DYNAMICS A CORE-PERIPHERY ANALYSIS BASED ON THE PAVITT-MIOZZO-SOETE TAXONOMY

We compare the industrial dynamics in the core, semi-periphery and periphery in The Netherlands in terms of firm entry-exit, size, growth and sectoral location patterns. The contribution of our work is to provide the first comprehensive study on spatial differentiation in industrial dynamics for all firm sizes and all sectors, including services. We find that at the aggregate level the spatial pattern of industrial dynamics is consistent with the spatial product lifecycle thesis: entry and exit rates are highest in the core and lowest in the periphery, while the share of persistently growing firms is higher in the periphery than in the core. Disaggregating the analysis to the sectoral level following the Pavitt-Miozzo-Soete taxonomy, findings are less robust. Finally, sectoral location patterns are largely consistent with the spatial product lifecycle model: Fordist sectors are over-represented in the periphery, while sectors associated with the ICT paradigm are over-represented in the core, with the notable exception of science-based manufacturing.Entry, exit, spatial product lifecycle, Fordist paradigm, ICT paradigm

Do Some Firms Persistently Outperform ?

This study analyses persistence in growth rates of the entire population of Dutch manufacturing firms. Previous literature on firm growth rates shows that extreme growth events are likely to be negatively correlated over time. A rebound effect following an extreme growth event questions the existence of persistent outperformers, indicated by a positive correlation over time. By supplementing the quantile regression analyses with transition probability matrices, our study shows that ?bouncing? firms co-exist with persistent outperformers. This result is robust if we exclude firms involved in acquisitions or spin offs. Differentiating among different size classes, we find that the existence of persistent outperformers is especially pronounced in micro firms. We interpret this finding as supporting the notion of a Schumpeter Mark I regime, with small firms displaying strong heterogeneity in their growth patterns, versus a Schumpeter Mark II regime, with large firms displaying less heterogeneity of growth.firm growth; heterogeneity; persistence, transition probability matrices; quantile regression

Spatial Differentiation in Industrial Dynamics. A Core-Periphery Analysis based on the Pavitt-Miozzo-Soete Taxonomy

We compare the industrial dynamics in the core, semi-periphery and periphery in The Netherlands in terms of firm entry-exit, size, growth and sectoral location patterns. The contribution of our work is to provide the first comprehensive study on spatial differentiation in industrial dynamics for all firm sizes and all sectors, including services. We find that at the aggregate level the spatial pattern of industrial dynamics is consistent with the spatial product lifecycle thesis: entry and exit rates are highest in the core and lowest in the periphery, while the share of persistently growing firms is higher in the periphery than in the core. Disaggregating the analysis to the sectoral level following the Pavitt-Miozzo-Soete taxonomy, findings are less robust. Finally, sectoral location patterns are largely consistent with the spatial product lifecycle model: Fordist sectors are over-represented in the periphery, while sectors associated with the ICT paradigm are over-represented in the core, with the notable exception of science-based manufacturing.Entry, exit, spatial product lifecycle, Fordist paradigm, ICT paradigm

Framing the empirical findings on firm growth

This paper proposes a general framework to account for the divergent results in the empirical literature on the relation between firm sizes and growth rates, and on many results on growth autocorrelation. In particular, we provide an explanation for why traces of the LPE sometimes occur in conditional mean (i.e. OLS) autoregressions of firm size or firm growth, and in conditional median (i.e. least absolute deviation) autoregressions, but never in high or low quantile autoregressions. Based on an original empirical analysis of the population of manufacturing firms in the Netherlands between 1994 and 2004, we find that there is no peculiar role played by the median of the growth distribution, which is approximately equal to zero independent of firm size. In economic terms, this is equivalent to saying that most of the phenomena of interest for industrial dynamics can be studied without reference to the behaviour of the median firm, and many `average' relations retrieved in the literature, starting from the negative relation between average size and average growth, are driven by the few dynamic firms in the sample rather than the many stable ones. Moreover, we observe the tent shape of the empirical firm growth rate distribution and confirm the skewness-size and the variance-size relations. The identified quantile regression patterns - autoregressive coefficients above 1 for fast decliners, and below 1 for fast growers - can be obtained by assuming negative variance-size scaling and Laplace growth rate distributions, and are robust to a mild positive relationship between skewness and size. A relationship between quantile regression patterns and previous findings is therefore uncovered.Firm growth; Law of Proportionate Effect; quantile regression; heterogeneity; variance-size scaling.