Do firms' growth rates depend on firm size?

• Published in: Small business economics Vol. 39; no. 4; pp. 937 - 947
• Main Authors: Bentzen, Jan, Madsen, Erik Strøjer, Smith, Valdemar
• Format: Journal Article
• Language: English
• Published: Boston Springer 01.11.2012; Springer US; Springer Nature B.V
• Subjects: Autocorrelation; Business and Management; Business structures; Construction industries; Corporate growth; Econometrics; Economic growth rate; Economies of scale; Empirical research; Entrepreneurship; Extractive industries; Financial services industries; Growth rate; Growth rates; Industrial economics; Industrial Organization; Law firms; Management; Manufacturing; Manufacturing industries; Market entry; Microeconomics; Panel data; Product differentiation; Service industries; Size of enterprise; Small and medium sized enterprises; L26; Panel data; Non-linear regressions; C23; D22; Firm size and growth; L11; Gibrat’s Law
• ISSN: 0921-898X; 1573-0913
• DOI: 10.1007/s11187-011-9341-8

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.