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The Dynamics of the Growth of Firms: Evidence from the Services Sector

  • Blandina Oliveira

    ()

    (ESTG, Instituto Politécnico de Leiria)

  • Adelino Fortunato

    ()

    (GEMF and Faculdade de Economia, Universidade de Coimbra)

Using a dynamic panel data model with serial correlation in the error term, the purpose of this paper is to examine if Gibrat’s law can be rejected for the services sector as it has been for manufacturing. The aim of this paper is also to improve the understanding of the empirical determinants of firm growth by extending the literature to include a new variable related to foreign participation. In addition, and based on recent developments in the growth of firms, our analysis also includes the role of the financial structure. The sample used is an unbalanced panel data set that includes all size classes, including the smallest surviving firms, from the Portuguese service sector over the period from 1995 to 2001. Applying the GMM-system and pooled OLS estimators our findings suggest that Gibrat’s law is rejected for services firms. In addition, the results also indicate that firm growth is mainly explained by firm size and age. These results have significant policy implications.

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Paper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2005-04.

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Length: 36 pages
Date of creation: 2005
Date of revision:
Publication status: Published in Empirica 35(3):293-312, 2008
Handle: RePEc:gmf:wpaper:2005-04
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