SCALING BEHAVIOR IN THE GROWTH OF COMPANIES

A successful theory of corporate growth should include both the extern al and internal factors that affect the growth of a company(1-18). Whe reas traditional models emphasize production-related influences such a s investment in physical capital and in research and development(18), recent models(10-20) recognize the equal importance of organizational infrastructure. Unfortunately, no exhaustive empirical account of the growth of companies exists by which these models can be tested. Here w e present a broad, phenomenological picture of the dependence of growt h on company size, derived from data for all publicly traded US manufa cturing companies between 1975 and 1991. We find that, for firms with similar sales, the distribution of annual (logarithmic) growth rates h as an exponential form; the spread in the distribution of rates decrea ses with increasing sales as a power law over seven orders of magnitud e. A model wherein the probability of a company's growth depends on it s past as well as present sales accounts for the former observation. A s the latter observation applies to companies that manufacture product s of all kinds, organizational structures common to all firms might we ll be stronger determinants of growth than production-related factors, which differ for companies producing different goods.