IDEAS home Printed from https://ideas.repec.org/a/kap/sbusec/v39y2012i4p937-947.html
   My bibliography  Save this article

Do firms’ growth rates depend on firm size?

Author

Listed:
  • Jan Bentzen

    ()

  • Erik Madsen

    ()

  • Valdemar Smith

    ()

Abstract

The empirical literature dealing with corporate growth does not in general give support to Gibrat’s Law stating that the expected increase in firm size is proportionate to its initial size, leaving their growth rates independent of size. Using a relatively large and representative sample of approximately 2,500 Danish firms representing all industries, we have evaluated the validity of Gibrat’s Law over the period 1990–2004. The present analysis addresses this question by applying econometric methods to test Gibrat’s Law and correcting for problems related to autocorrelation. The empirical findings of our study do not generally support Gibrat’s Law, but in contrast to the results of earlier studies, the analysis reveals that firms’ growth rates are more likely to be positively related to firm size. Copyright Springer Science+Business Media, LLC. 2012

Suggested Citation

  • Jan Bentzen & Erik Madsen & Valdemar Smith, 2012. "Do firms’ growth rates depend on firm size?," Small Business Economics, Springer, vol. 39(4), pages 937-947, November.
  • Handle: RePEc:kap:sbusec:v:39:y:2012:i:4:p:937-947
    DOI: 10.1007/s11187-011-9341-8
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11187-011-9341-8
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Georgios Fotopoulos & Helen Louri, 2004. "Firm Growth and FDI: Are Multinationals Stimulating Local Industrial Development?," Journal of Industry, Competition and Trade, Springer, vol. 4(3), pages 163-189, September.
    2. Blandina Oliveira & Adelino Fortunato, 2006. "Testing Gibrat's Law: Empirical Evidence from a Panel of Portuguese Manufacturing Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(1), pages 65-81.
    3. Robert Petrunia, 2008. "Does Gibrat’s Law Hold? Evidence from Canadian Retail and Manufacturing Firms," Small Business Economics, Springer, vol. 30(2), pages 201-214, February.
    4. John Goddard & David McMillan & John Wilson, 2006. "Do firm sizes and profit rates converge? Evidence on Gibrat's Law and the persistence of profits in the long run," Applied Economics, Taylor & Francis Journals, vol. 38(3), pages 267-278.
    5. Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2009. "Defending Gibrat’s Law as a long-run regularity," Small Business Economics, Springer, vol. 32(1), pages 31-44, January.
    6. Blonigen, Bruce A. & Tomlin, KaSaundra, 2001. "Size and growth of Japanese plants in the United States," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 931-952, May.
    7. Geroski, Paul, 2003. "The Evolution of New Markets," OUP Catalogue, Oxford University Press, number 9780199248896.
    8. Chesher, Andrew, 1979. "Testing the Law of Proportionate Effect," Journal of Industrial Economics, Wiley Blackwell, vol. 27(4), pages 403-411, June.
    9. Blandina Oliveira & Adelino Fortunato, 2008. "The dynamics of the growth of firms: evidence from the services sector," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 35(3), pages 293-312, July.
    10. D.B. Audretsch & L. Klomp & E. Santarelli & A.R. Thurik, 2004. "Gibrat's Law: Are the Services Different?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 24(3), pages 301-324, May.
    11. Ioannis Giotopoulos & Georgios Fotopoulos, 2010. "Intra-Industry Growth Dynamics in the Greek Services Sector: Firm-Level Estimates for ICT-Producing, ICT-Using, and Non-ICT Industries," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(1), pages 59-74, February.
    12. Jan Bentzen & Erik Madsen & Valdemar Smith, 2006. "The growth opportunities for SMC?," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 7(3), pages 139-145.
    13. J. O. S. Wilson & J. E. MORRIS, 2000. "The Size and Growth of UK Manufacturing and Service Firms," The Service Industries Journal, Taylor & Francis Journals, vol. 20(2), pages 25-38, April.
    14. Coad, Alex & Rao, Rekha, 2008. "Innovation and firm growth in high-tech sectors: A quantile regression approach," Research Policy, Elsevier, vol. 37(4), pages 633-648, May.
    15. Peter Hart & Nicholas Oulton, 1999. "Gibrat, Galton and Job Generation," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 149-164.
    16. Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2003. "Does Gibrat's Law hold among young, small firms?," Journal of Evolutionary Economics, Springer, vol. 13(3), pages 213-235, August.
    17. J. O. S. Wilson & J. M. Williams, 2000. "The size and growth of banks: evidence from four European countries," Applied Economics, Taylor & Francis Journals, vol. 32(9), pages 1101-1109.
    18. Del Monte, Alfredo & Papagni, Erasmo, 2003. "R&D and the growth of firms: empirical analysis of a panel of Italian firms," Research Policy, Elsevier, vol. 32(6), pages 1003-1014, June.
    19. Georgios Fotopoulos & Ioannis Giotopoulos, 2010. "Gibrat’s law and persistence of growth in Greek manufacturing," Small Business Economics, Springer, vol. 35(2), pages 191-202, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hien Thu Pham & Shino Takayama, 2017. "Revisiting the “Missing Middle†: Productivity Analysis," Discussion Papers Series 580, School of Economics, University of Queensland, Australia.
    2. repec:spr:empeco:v:55:y:2018:i:2:d:10.1007_s00181-017-1290-x is not listed on IDEAS
    3. Alicia Rodríguez & María Jesús Nieto, 2016. "Does R&D offshoring lead to SME growth? Different governance modes and the mediating role of innovation," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1734-1753, August.
    4. repec:eee:ecmode:v:70:y:2018:i:c:p:259-271 is not listed on IDEAS
    5. Alexander Schiersch, 2013. "Firm size and efficiency in the German mechanical engineering industry," Small Business Economics, Springer, vol. 40(2), pages 335-350, February.
    6. Höhler, Julia & Kuhl, Rainer, 2014. "Corporations in an evolving competitive environment - evidence for the German agribusiness," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182689, European Association of Agricultural Economists.
    7. Hien Thu Pham & Shino Takayama, 2015. "Revisiting the Missing Middle: Production and Corruption," CEPA Working Papers Series WP022015, School of Economics, University of Queensland, Australia.
    8. repec:ksa:szemle:1695 is not listed on IDEAS
    9. Marko Peric & Vanja Vitezic, 2016. "Impact of global economic crisis on firm growth," Small Business Economics, Springer, vol. 46(1), pages 1-12, January.
    10. Mariana Mazzucato & Stuart Parris, 2015. "High-growth firms in changing competitive environments: the US pharmaceutical industry (1963 to 2002)," Small Business Economics, Springer, vol. 44(1), pages 145-170, January.
    11. Hien Thu Pham & Shino Takayama, 2017. "Firm Size Distribution, Production Efficiency, and Returns to Scale: A Stochastic Frontier Approach," Discussion Papers Series 581, School of Economics, University of Queensland, Australia.
    12. Navyashree G. R. & Savita Bhat, 2016. "ICT Investments and Growth of Small and Medium Firms: A Study of Food Processing Industry in India," Working Papers id:11306, eSocialSciences.
    13. Marko Peric & Vanja Vitezic, 2016. "Impact of global economic crisis on firm growth," Small Business Economics, Springer, vol. 46(1), pages 1-12, January.
    14. repec:ibn:ijefaa:v:9:y:2017:i:8:p:138-150 is not listed on IDEAS
    15. F. Zhou & W.J.W. Botzen, 2017. "The Impact of Natural Disasters on Firm Growth in Vietnam: : Interaction with Financial Constraints," Working Papers 17-20, Utrecht School of Economics.
    16. Navyashree G. R. & Savita Bhat, 2018. "ICT Investments and Growth of Small and Medium Firms: A Study of Food Processing Industry in India," Working Papers id:12731, eSocialSciences.

    More about this item

    Keywords

    Gibrat’s Law; Firm size and growth; Panel data; Non-linear regressions; C23; D22; L11; L26;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:sbusec:v:39:y:2012:i:4:p:937-947. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.