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The Law of Proportionate Effect: A test based on the graphical model methodology

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  • Marco Guerzoni
  • Luigi Riso
  • Marco Vivarelli

Abstract

Using both regression analysis and an unsupervised graphical model approach (never applied before to this issue), we confirm the rejection of the Gibrat’s law when our firm-level data are considered over the entire investigated period, while the opposite is true when we allow for market selection. Indeed, the growth behavior of the re-shaped (smaller) population of the survived most efficient firms is in line with the Law of Proportionate Effect; this evidence reconciles early and current literature testing Gibrat’s law and may have interesting implications in terms of both applied and theoretical research.

Suggested Citation

  • Marco Guerzoni & Luigi Riso & Marco Vivarelli, 2023. "The Law of Proportionate Effect: A test based on the graphical model methodology," Working Papers 514, University of Milano-Bicocca, Department of Economics.
    • Handle: RePEc:mib:wpaper:514
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    References listed on IDEAS

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    More about this item

    Keywords

    Gibrat’s Law; firm survival; market selection; firm growth;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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