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Firm Size and Growth Rate Variance: The Effects of Data Truncation

Marco Capasso and Elena Cefis

Review of Industrial Organization, 2012, vol. 41, issue 3, 193-205

Abstract: This paper discusses the effects of the existence of natural and/or exogenously imposed thresholds in firm size distributions on estimations of the relation between firm size and the variance in firm growth rates. We argue that these estimations are upwardly biased whenever the threshold operates on the same proxy that is used to calculate the growth rates. We show the potential impact of the bias on simulated data, suggest a methodology to improve these estimations, and present an empirical analysis on Dutch firms. The only stable relation that emerges is the negative relationship between firm size and growth rate variance. Copyright The Author(s) 2012

Keywords: Firm growth; Growth rate variance; Thresholds; Truncation; L25; C21 (search for similar items in EconPapers)
Date: 2012
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Working Paper: Firm Size and Growth Rate Variance: the Effects of Data Truncation (2010) Downloads
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DOI: 10.1007/s11151-012-9350-z

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Handle: RePEc:kap:revind:v:41:y:2012:i:3:p:193-205