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ICC Advance Access originally published online on August 17, 2006
Industrial and Corporate Change 2006 15(5):847-875; doi:10.1093/icc/dtl019
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© The Author 2006. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved.

Gibrat’s Law and diversification

Giulio Bottazzi

Angelo Secchi

Correspondence: Address for correspondence Giulio Bottazzi, Scuola Superiore Sant’Anna, P.za Martiri della Liberta’ 33, 56127, Pisa, Italy. e-mail: bottazzi{at}sssup.it.

This article presents an analysis of the growth patterns of the worldwide top 200 firms in the pharmaceutical industry. A test of the Gibrat’s Law of Proportionate Effect is performed and we find, in line with previous literature, a violation concerning the variance of growth. Using disaggregated data on sub-markets, we are however able to show that this violation can be completely accounted for by a diversification effect, namely a scale relation between the number of sub-markets in which a firm is active and its size. To interpret these findings, we propose a stochastic branching model of firm diversification consistent with a notion of cumulative corporate competences.


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