Abstract
Gibrat’s law predicts that firm growth is purely random and should be independent of firm size. We use a random effects–random coefficient model to test whether Gibrat’s law holds on average in the studied sample as well as at the individual firm level in the Swedish energy market. No study has yet investigated whether Gibrat’s law holds for individual firms, previous studies having instead estimated whether the law holds on average in the samples studied. The present results support the claim that Gibrat’s law is more likely to be rejected ex ante when an entire firm population is considered, but more likely to be confirmed ex post after market selection has “cleaned” the original population of firms or when the analysis treats more disaggregated data. From a theoretical perspective, the results are consistent with models based on passive and active learning, indicating a steady state in the firm expansion process and that Gibrat’s law is violated in the short term but holds in the long term once firms have reached a steady state. These results indicate that approximately 70 % of firms in the Swedish energy sector are in steady state, with only random fluctuations in size around that level over the 15 studied years.
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Notes
As the Nordic energy market is expanding, there is still a need for more interconnections between the Nordic countries. How to finance such cross-border investments and how to make transmission systems more efficient are considered by Nylund (2013) in papers 1–3.
The rationale for the classification is discussed in detail in Sect. 4.2.
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Acknowledgments
I would like to express my thanks to Professor Niklas Rudholm for his valuable and constructive suggestions during this research work. His willingness to give his time so generously was very much appreciated. My gratitude is also extended to Professor Lars Hultkranz and Ph.D. student Zuzana Machucova for their useful comments on this paper. Finally, I wish to thank the audience at a seminar in May 2013 at Örebro University for their valuable comments and suggestions.
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Tang, A. Does Gibrat’s law hold for Swedish energy firms?. Empir Econ 49, 659–674 (2015). https://doi.org/10.1007/s00181-014-0883-x
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DOI: https://doi.org/10.1007/s00181-014-0883-x