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.
Amaral L. A. N., Buldyrev S. V., Havlin S., Salinger M. A., Stanley H. E. (1998) Power law scaling for a system of interacting units with complex internal structure. Physical Review Letters 80(7): 1385–1388
Amaral L. A. N., Buldyrev S. V., Havlin S., Salinger M. A., Stanley H. E., Stanley M. H. R. (1997) Scaling behavior in economics: The problem of quantifying company growth. Physica A 244: 1–24
Baum C. F. (2006) An introduction to modern econometrics using Stata. Stata Press, College station, TX
Bottazzi G., Cefis E., Dosi G. (2002) Corporate growth and industrial structure: Some evidence from the Italian manufacturing industry. Industrial and Corporate Change 11: 705–723
Bottazzi G., Cefis E., Dosi G., Secchi A. (2007) Invariances and diversities in the evolution of manufacturing industries. Small Business Economics 29: 137–159
Bottazzi G., Coad A., Jacoby N., Secchi A. (2011) Corporate growth and industrial dynamics: Evidence from French manufacturing. Applied Economics 43(1): 103–116
Bottazzi G., Secchi A. (2003) Common properties and sectoral specificities in the dynamics of U.S. manufacturing companies. Review of Industrial Organization 23: 217–232
Bottazzi G., Secchi A. (2006) Explaining the distribution of firm growth rates. Rand Journal of Economics 37(2): 235–256
Coad A. (2007) A closer look at serial growth rate correlation. Review of Industrial Organization 31(1): 69–82
Coad A., Hölzl W. (2009) On the autocorrelation of growth rates. Journal of Industry, Competition and Trade 9(2): 139–166
Gibrat R. (1931) Les inégalités économiques. Librairie du Recueil Sirey, Paris
Hymer S., Pashigian P. (1962) Firm size and the rate of growth. Journal of Political Economy 70(4): 556–569
Matia K., Fu D., Buldyrev S. V., Pammolli F., Riccaboni M., Stanley H. E. (2004) Statistical properties of business firms structure and growth. Europhysics Letters 67(3): 498–503
Meyer J. R., Kuh E. (1957) The investment decision. Harvard University Press, Cambridge, Massachusetts
Perline, R., Axtell, R., & Teitelbaum, D. (2006). Volatility and asymmetry of small firm growth rates over increasing time frames. U.S. Small Business Administration, The Office of Advocacy Small Business Working Papers 06/rarpdt. Retrieved October 1, 2008, from http://ideas.repec.org/p/sba/wpaper/06rarpdt.html.
Stanley M. H. R., Amaral L. A. N., Buldyrev S. V., Havlin S., Leschorn H., Maass P., Salinger M. A, Stanley H. E. (1996) Scaling behavior in the growth of companies. Nature 379: 804–806
Steindl J. (1965) Random processes and the growth of firms: A study of the Pareto law. Griffin, London
Sutton J. (1997) Gibrat’s Legacy. Journal of Economic Literature 35: 40–59
The authors thank Lawrence J. White (general editor), two anonymous referees, Andrew Bernard, Koen Frenken, and the participants at the DIME Workshop on “The dynamics of firm evolution: productivity, profitability and growth”, Pisa, 3–4 October 2008. The empirical work was carried out at the Centre for Research of Economic Microdata at Statistics Netherlands (CBS). The views expressed in this paper are those of the authors and do not necessarily reflect the policies of Statistics Netherlands. The authors thank Gerhard Meinen and on-site staff of CBS for their collaboration. This work was supported by Utrecht University [High Potential Grant (HIPO) to E. Cefis and K. Frenken]; and the University of Bergamo [grant ex 60 %, n. 60CEFI11, Department of Economics, to E. Cefis].
This article is distributed under the terms of the Creative Commons Attribution License which permits any use, distribution, and reproduction in any medium, provided the original author(s) and the source are credited.
About this article
Cite this article
Capasso, M., Cefis, E. Firm Size and Growth Rate Variance: The Effects of Data Truncation. Rev Ind Organ 41, 193–205 (2012). https://doi.org/10.1007/s11151-012-9350-z
- Firm growth
- Growth rate variance