Are differences in firm size transitory or permanent?

• Published in: Journal of applied econometrics (Chichester, England) Vol. 18; no. 1; pp. 47 - 59
• Main Authors: Geroski, P. A., Lazarova, S., Urga, G., Walters, C. F.
• Format: Journal Article
• Language: English
• Published: Chichester, UK John Wiley & Sons, Ltd 01.01.2003; John Wiley & Sons; Wiley Periodicals Inc
• Subjects: Applied economics; Business growth; Business structures; Corporate growth; Data analysis; Determinism; Econometrics; Economic growth models; Empirical research; Enterprises; Equilibrium; Growth rate; Industrial economics; Net assets; Null hypothesis; Size of enterprise; Statistical variance; Studies; Time series; Trends; United Kingdom > UK
• ISSN: 0883-7252; 1099-1255
• DOI: 10.1002/jae.676

Previous empirical work on corporate growth rates using cross-section or short-panel econometric techniques suggests that growth rates are random but that some degree of mean reversion exists. This means that size differences between firms are transitory. Another, more natural way to explore the long-run distribution of firm sizes is to examine data on the growth of particular firms over long periods of time. Using a sample of 147 UK firms observed continually for more than 30 years, our conclusions are that growth rates are highly variable over time and that differences in growth rates between firms do not persist for very long. Further, firms show no tendency to converge to either a common size or to a pattern of stable size differences over time. These results are compared and contrasted with standard approaches that suggest that firms reach and maintain stable positions in a skewed size distribution.