The origin of collective phenomena in firm sizes

•Corporate bankruptcy is employed to explain the origin of scale invariance in firm sizes.•The possibility of bankruptcy increases the scaling exponent.•The scaling property is negatively affected by the extent of information disparity. This study explains the emergence and changes of collective phe...

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Bibliographic Details
Published in:Chaos, solitons and fractals solitons and fractals, 2020-07, Vol.136, p.109818, Article 109818
Main Authors: Ji, Guseon, Dai, Bingcun, Park, Sung-Pil, Ahn, Kwangwon
Format: Article
Language:English
Subjects:
Collective phenomena
Corporate bankruptcy
Information disparity
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Summary:•Corporate bankruptcy is employed to explain the origin of scale invariance in firm sizes.•The possibility of bankruptcy increases the scaling exponent.•The scaling property is negatively affected by the extent of information disparity. This study explains the emergence and changes of collective phenomena observed in firm size distribution, in particular scale-invariant power law behavior, by applying the notion of corporate bankruptcy. We present a model which predicts that corporate failure rate is positively related to the scaling exponent, and the extent of information disparity is negatively associated to the scaling exponent. We test our model prediction with the US corporate bankruptcy data, and find that the outcomes of large-firm shocks could have a stronger impact when the information environment is worse.
ISSN:0960-0779
1873-2887
DOI:10.1016/j.chaos.2020.109818