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Does Gibrat’s Law Hold for Swedish Energy Firms?

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  • Tang, Ali

    (HUI Research)

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    Abstract

    Gibrat’s law predicts that firm growth is purely random and should be independent of firm size. We use a random effects–random coefficient model to test whether Gibrat’s law holds at the firm level in the Swedish energy market. No study has investigated whether Gibrat’s law holds for individual firms in the energy sector. The present results support the claim that Gibrat’s law is more likely to be rejected ex ante when an entire firm population is considered, but more likely to be confirmed ex post after market selection has “cleaned” the original population of firms or when the analysis treats more disaggregated data. From a theoretical viewpoint, the results are consistent with models based on passive and active learning, indicating a steady state in the firm expansion process and that, before it is achieved, Gibrat’s law is violated in the short term, but holds in the long term when firms have reached a “steady state”. These results indicate that approximately 70% of firms in the Swedish energy sector are in steady state, with only random fluctuations in size around that level over the 15 studied years.

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    Bibliographic Info

    Paper provided by HUI Research in its series HUI Working Papers with number 99.

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    Length: 23 pages
    Date of creation: 29 Jan 2014
    Date of revision:
    Handle: RePEc:hhs:huiwps:0099

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    Related research

    Keywords: firm size; firm growth; random coefficient; energy sector;

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    Cited by:
    1. Macuchova, Zuzana & Rudholm, Niklas & Tang, Aili, 2014. "Firm growth in the Swedish energy sector: Will large firms become even more dominant?," HUI Working Papers 104, HUI Research.

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