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Firm Size and Optimal Growth Rates*
| Content Provider | Semantic Scholar |
|---|---|
| Author | Segal, Uzi Spivak, Avia Lniwrsity, Ben Gurion |
| Copyright Year | 2014 |
| Abstract | One of the major decisions a firm must make is how to allocate the profits between dividends and retained earnings. Retained earnings reinvested in the firm provide for future growth. The rate by which the firm grows is thus an endogenous decision variable, arrived at as a result of intertemporal maximization. This consideration is entirely overlooked in discussions of growth rate and firms’ size. Simon, who contributed significantly to this literature (see Simon and Bonini (1958) and the references therein), adopted Gibrat’s Law, the assumption that a single firm’s rate of growth is independent of its size. He proceeded to obtain the stationary size distribution consistent with this assumption. This paper suggests to regard the growth rate as a solution to an explicit intertemporal maximization problem. In order to avoid the agency problem, it is assumed that the firm is owned by a single shareholder who is afso the manager. The owner is risk-neutral and seeks to maximize the expected discounted value of his income from the firm. The firm’s growth rate is |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://www.bc.edu/content/dam/files/schools/cas_sites/economics/pdf/workingpapers/Segal/1989_eer_spivak_firm.pdf |
| Language | English |
| Access Restriction | Open |
| Subject Keyword | Arrival - action Assumed Bibliographic Reference Delay Discounting Entity Name Part Qualifier - adopted Entropy maximization Simon Stationary process |
| Content Type | Text |
| Resource Type | Article |
