Testing the Law of Proportionate Effect

Abstract

IT IS well known that the distribution of companies by size is approximately log-normal. This form arises under certain conditions as the limiting distribution of the product of positive random variates as the number of terms in the product tends to infinity. The current size of a company may be decomposed into the product of past proportionate growth rates and an initial size and sufficiently strong conditionsl on these growth rates ensure that the distribution of the variate 'company size' becomes lognormal as the time elapsed from the start of the growth process tends to infinity.

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