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Testing Gibrat's legacy: A Bayesian approach to study the growth of firms

  • Cefis, Elena
  • Ciccarelli, Matteo
  • Orsenigo, Luigi

Gibrat's law is a referent model of corporate growth dynamics. This paper employs Bayesian panel data methods to test for Gibrat's law and its implications. Using a Pharmaceutical Industry Database (1987-1998), we find evidence against Gibrat's law on average, within or across industries. Estimated steady states differ across firms, and firm sizes and growth rates don't converge within the same industry to a common limiting distribution. There is only weak evidence of mean reversion: initial larger firms do not grow relatively slower than smaller firms. Differences in growth rates and in size steady state are persistent and firm-specific, rather than size-specific.

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Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 18 (2007)
Issue (Month): 3 (September)
Pages: 348-369

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Handle: RePEc:eee:streco:v:18:y:2007:i:3:p:348-369
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/525148

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