Firms as Bundles of Discrete Resources - Towards an Explanation of the Exponential Distribution of Firm Growth Rates

A robust feature of the corporate growth process is the Laplace, or symmetric exponential, distribution of firm growth rates. In this paper, we sketch out a class of simple theoretical models capable of explaining this empirical regularity. We do not attempt to generalize on where growth opportunities comme from, but rather we focus on how firms build upon growth opportunites. We borrow ideas from the self-organizing criticality literature to explain how the interdependent nature of discrete resources may lead to the triggering off of a series of additions to a firm's resources. In a first formal model we consider the case of employment growth in a hierarchy, and observe that growth rates follow an exponential distribution. In a second model we include plant and capital as resources and we are able to reproduce a number of stylized facts about firm growth.