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Do firms’ growth rates depend on firm size?

Jan Bentzen, Erik Madsen and Valdemar Smith ()

Small Business Economics, 2012, vol. 39, issue 4, 937-947

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

Keywords: Gibrat’s Law; Firm size and growth; Panel data; Non-linear regressions; C23; D22; L11; L26 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s11187-011-9341-8

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