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A new perspective on the firm size-growth relationship: shape of profits, investment and heterogeneous credit constraints

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  • MAYNERIS, Florian

    ()
    (Université catholique de Louvain, CORE & IRES, B-1348 Louvain-la-Neuve, Belgium)

Abstract

This paper shows that the diverging results obtained in the literature on the firm size-growth relationship can be reconciled in a very general theoretical framework featuring firm-level heterogeneity and investment decision. Three main elements determine the nature and the intensity of the relationship between firm-level size and investment: the shape of operating profits with respect to size, the shape of marginal returns to investment (in terms of size) with respect to initial size and the shape of marginal cost of investment with respect to size. Any difference across countries, industries or periods in one of these three dimensions can modify the sign and the intensity of the firm size-investment and the firm size-growth relationship at equilibrium. As an example, I show that in France, heterogeneous credit constraints, which affect the shape of the marginal cost of investment, can explain cross-sectoral variations in the firm size-investment and firm size-growth relationship over the 1996-2002 period. As a consequence, from a macroeconomic viewpoint, firm size distribution is, all else equal, more right-skewed in sectors where small firms are disproportionately credit constrained and small firms participate less to sectorial growth in these sectors. The analytical framework proposed in this paper is general enough to apply to the analysis of any heterogeneous response of economic agents.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011062.

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Date of creation: 22 Dec 2011
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Handle: RePEc:cor:louvco:2011062

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Keywords: investment; size; firm size-growth relationship; financial constraints;

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  1. PONCET, Sandra & STEINGRESS, Walter & VANDENBUSSCHE, Hylke, . "Financial constraints in China: firm-level evidence," CORE Discussion Papers RP -2350, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. di Giovanni, Julian & Levchenko, Andrei A. & Rancière, Romain, 2011. "Power laws in firm size and openness to trade: Measurement and implications," Journal of International Economics, Elsevier, vol. 85(1), pages 42-52, September.
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  5. Gorodnichenko, Yuriy & Schnitzer, Monika, 2013. "Financial constraints and innovation: Why poor countries don't catch up," Munich Reprints in Economics 20443, University of Munich, Department of Economics.
  6. Bronwyn H. Hall & Jacques Mairesse & Benoit Mulkay & Jacques Mairesse, 1999. "Firm Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," Econometrics 9902001, EconWPA.
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  8. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," Working Papers 10-17, Center for Economic Studies, U.S. Census Bureau.
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  10. Stephen Bond & Julie Ann Elston & Jacques Mairesse & Beno�t Mulkay, 2003. "Financial Factors and Investment in Belgium, France, Germany, and the United Kingdom: A Comparison Using Company Panel Data," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 153-165, February.
  11. Jan De Loecker, 2004. "Do Exports Generate Higher Productivity? Evidence from Slovenia," LICOS Discussion Papers 15104, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  12. Beata S. Javorcik & Mariana Spatareanu, 2009. "Liquidity Constraints and Firms' Linkages with Multinationals," World Bank Economic Review, World Bank Group, vol. 23(2), pages 323-346, June.
  13. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
  14. Johannes Van Biesebroeck, 2003. "Exporting Raises Productivity in Sub-Saharan African Manufacturing Plants," NBER Working Papers 10020, National Bureau of Economic Research, Inc.
  15. Audretsch, David B. & Elston, Julie Ann, 2000. "Does firm size matter? Evidence on the impact of liquidity constraint on firm investment behavior in Germany," HWWA Discussion Papers 113, Hamburg Institute of International Economics (HWWA).
  16. Audretsch, David B. & Elston, Julie Ann, 2000. "Does firm size matter? Evidence on the impact of liquidity constraint on firm investment behavior in Germany," HWWA Discussion Papers 113, Hamburg Institute of International Economics (HWWA).
  17. Jozef Konings & Marian Rizov & Hylke Vandenbussche, 2002. "Investment and Credit Constraints in Transition Economies: Micro Evidence from Poland, the Czech Republic, Bulgaria and Romania," LICOS Discussion Papers 11202, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  18. Audretsch, David B & Elston, Julie Ann, 1994. "Does Firm Size Matter? Evidence on the Impacts of Liquidity Constraints on Firm Investment Behaviour in Germany," CEPR Discussion Papers 1072, C.E.P.R. Discussion Papers.
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Cited by:
  1. Hasan, Syed M., 2013. "Credit Constraints, Technology Choice and Exports - A Firm Level Study for Latin American Countries," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149742, Agricultural and Applied Economics Association.

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