In the preceding chapter we examined the statistical laws and patterns observed in distributions of company sizes, and it was noted that the tails of the distributions of flow and stock variables quantifying company size both obey Pareto's law.

Indeed, as was mentioned in subsection 2.1.2, Pareto's power law is commonly found in many phenomena observed within the natural sciences, as well as the social and economic sciences. Most researchers in these fields would accept that there is no single mechanism giving a universal explanation for all these phenomena, but rather that different mechanisms would be found for each of a variety of classes of phenomena.

Company size obviously changes over time: last year's sales are not equal to this year's; the previous quarter's total assets are different from those in this quarter; and debt increases or decreases according to levels of borrowing from financial institutions or from investors. Thus we can see that observations on the distribution of company size are a snapshot of the state of a collection of companies, each of which is individually subject to fluctuations.

Our analysis is now being led towards the examination of temporal change in company size in terms of flow and stock variables, with a view to providing an account of the appearance of size distributions seen as a consequence of fluctuations. Therefore, our next step is to understand fluctuations in company size, in other words the growth or contraction of companies.