Do Pareto-Zipf and Gibrat Law Hold True? An Analysis with European Firms

Publisher:
Elsevier Science BV
Publication Type:
Journal Article
Citation:
Physica A: Statistical Mechanics and its Applications, 2004, 335 (1-2), pp. 197 - 216
Issue Date:
2004-01
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By employing exhaustive lists of large firms in European countries, we show that the upper-tail of the distribution of firm size can be fitted with a power-law (ParetoZipf law), and that in this region the growth rate of each firm is independent of the firm's size (Gibrat's law of proportionate effect). We also find that detailed balance holds in the large-size region for periods we investigated; the empirical probability for a firm to change its size from a value to another is statistically the same as that for its reverse process. We prove several relationships among ParetoZipf's law, Gibrat's law and the condition of detailed balance. As a consequence, we show that the distribution of growth rate possesses a non-trivial relation between the positive side of the distribution and the negative side, through the value of Pareto index, as is confirmed empirically.
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