Skip to main content
SpringerLink
Log in

The devil dwells in the tails

A quantile regression approach to firm growth

  • Regular Article
  • Published:
Journal of Evolutionary Economics Aims and scope Submit manuscript

Abstract

This paper explores firm growth rate distribution in a Gibrat’s Law context. It is novel in two respects. First, rather than limiting the analysis to a focus on the conditional mean, we investigate the entire shape of the distribution. Second, we show that differences in the firm growth rate process between large and small firms are highly circumstantial and depend on the industry dynamics. The data used include more than 9,000 Danish manufacturing, services and construction firms. We provide robust evidence indicating that firm growth studies should concentrate less on explaining means and instead focus on other parts of the firm growth rate distribution.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

Notes

  1. However, this empirical finding has been attributed to sample attrition/selection bias. Exits are not included in these studies, and the sample includes predominantly small firms, producing a bias in the size variable in favor of small firms. Harhoff et al. (1998), however, indicated that the negative correlation persists even when controlling for sample attrition. For reviews of Gibrat’s Law, see e.g. Sutton (1997) and Lotti et al. (2003).

  2. The standard errors of the OLS regression estimates have been corrected for bias in terms of heteroskedasticity. We followed Long and Erwins’s (2000) recommendations using MacKinnon and White’s (1985) method.

References

  • Arthur BW (1994) Increasing returns and path dependency in the economy. The Universty of Michigan Press, Ann Arbor

    Google Scholar 

  • Balassa B (1965) Trade liberalization and ’revealed’ comparative advantage. Manch Sch Econ Soc Stud 32:99–123

    Article  Google Scholar 

  • Barney JB (1991) Firm resources and sustained competitive advantage. J Manage 17(1):99–120

    Article  Google Scholar 

  • Barney JB (2001) Is the resource-based view a useful perspective for strategic management research: yes. Acad Manage Rev 26(1):41–56

    Article  Google Scholar 

  • Bottazzi G, Secchi A (2003) Why are distributions of firm growth rates tent-shaped? Econ Lett 80:415–420

    Article  Google Scholar 

  • Bottazzi G, Cefis E, Dosi G (2002) Corporate growth and industrial structure. Some evidence from the Italian manufacturing industry. Ind Corp Change 11(4):705–723

    Article  Google Scholar 

  • Bottazzi G, Dosi G, Lippi M, Pammolli F, Riccaboni M (2001) Innovation and corporate growth in the evolution of the drug industry. Int J Ind Organ 19(7):1161–1187

    Article  Google Scholar 

  • Buchinsky M (1998) Recent advances in quantile regression models: a practical guideline for empirical research. J Hum Resour 33(1):88–126

    Article  Google Scholar 

  • Cantner U, Krüger JJ (2007) Empirical tools for the analysis of technological heterogeneity and change. In: Hanusch H, Pyka A (eds) Companion to neo-Schumpeterian economics. Edward Elgar, Cheltenham

    Google Scholar 

  • Coad A (2006) A closer look at serial growth rate correlation. LEM working paper series. Sant’ Anna School of Advanced Studies, Pisa

    Google Scholar 

  • Coad A, Rao R (2006) Innovation and firm growth in high-tech sectors: a quantile regression approach. LEM working paper series. Sant’ Anna School of Advanced Studies, Pisa

    Google Scholar 

  • Davies SW, Geroski PA (1997) Changes in concentration, turbulence, and the dynamics of market shares. Rev Econ Stat79(3):383–391

    Article  Google Scholar 

  • Dosi G, Nelson RR, Winter SG (2000) The nature and dynamics of organizational capabilities. Oxford University Press, Oxford

    Google Scholar 

  • Dunne P, Hughes A (1994) Age, size, growth and survival: UK companies in the 1980s. J Ind Econ 42(2):115–141

    Article  Google Scholar 

  • Dunne P, Roberts MJ, Samuelson L (1989) The growth and failure of us manufacturing firms. Q J Econ 104(4):671–698

    Article  Google Scholar 

  • Eisenhardt KM, Martin JA (2000) Dynamic capabilities: what are they? Strateg Manage J 21(10–11):1105–1121

    Article  Google Scholar 

  • Evans DS (1987a) The relationship between firm growth, size and age: estimates for 100 manufacturing industries. J Ind Econ 35(4):567–581

    Article  Google Scholar 

  • Evans DS (1987b) Tests of alternative theories of firm growth. J Polit Econ 95(4):657–674

    Article  Google Scholar 

  • Foss NJ (1997) The classical theory of production and the capabilities view of the firm. J Econ Stud 24(5):307–323

    Article  Google Scholar 

  • Gibrat R (1931) Les inégalitiés economiques. Requeil Sirey, Paris

    Google Scholar 

  • Hall BH (1987) The relationship between firm size and firm growth in the US manufacturing sector. J Ind Econ 35(4):583–606

    Article  Google Scholar 

  • Harhoff D, Stahl K, Woywode M (1998) Legal form, growth and exit of west german firms—empirical results for manufacturing, construction, trade and service industries. J Ind Econ 46(4):453–488

    Article  Google Scholar 

  • Hart PE, Oulton N (1996) Growth and size of firms. Econ J 106:1242–1252

    Article  Google Scholar 

  • Hart PE, Prais SJ (1956) The analysis of business concentration: a statistical approach. J R Stat Soc 119:150–191

    Article  Google Scholar 

  • Hymer S, Pashigian P (1962) Firm size and rate of growth. J Polit Econ 70(6):556–569

    Article  Google Scholar 

  • Ijiri Y, Simon HA (1977) Skew distributions and sizes of business firms. North-Holland, New York

    Google Scholar 

  • Jovanovic B (1982) Selection and the evolution of industry. Econometrica 50(3):649–670

    Article  Google Scholar 

  • Koenker R (2005) Quantile regression. Econometric Society monographs no. 38. Cambridge University Press, New York

    Google Scholar 

  • Koenker RW, Basset GJ (1978) Regression quantiles. Econometrica 46(1):33–50

    Article  Google Scholar 

  • Koenker RW, Hallock KF (2001) Quantile regression. J Econ Perspect 15(4):143–156

    Article  Google Scholar 

  • Krugman P (1991) Increasing returns and economic geography. J Polit Econ 99(3):483–499

    Article  Google Scholar 

  • Long JS, Ervin LH (2000) Using heteroscedasticity consistent standard errors in the linear regression model. Am Stat 54(3):213–224

    Article  Google Scholar 

  • Lotti F, Santarelli E, Vivarelli M (2003) Does Gibrat’s law hold among young, small firms? J Evol Econ 13:213–235

    Article  Google Scholar 

  • MacKinnon JG, White H (1985) Some heteroskedasticity consistent covariance matrix estimators with improved finite sample properties. J Econom 29(3):52–57

    Article  Google Scholar 

  • Mansfield E (1962) Entry, Gibrat’s law, innovation, and the growth of firms. Am Econ Rev 52(5):1023–1051

    Google Scholar 

  • McKelvey B, Andriani P (2005) Why gaussian statistics are mostly wrong for strategic organization. Strateg Organ 3(2):219–228

    Article  Google Scholar 

  • Penrose ET (1959) The theory of the growth of the firm. Basil Blackwell, Oxford

    Google Scholar 

  • Reichstein T, Dahl MS (2004) Are firm growth rates random—analyzing patterns and dependencies. Int Rev Appl Econ 18(2):225–246

    Article  Google Scholar 

  • Reichstein T, Jensen MB (2005) Firm size and firm growth rate distributions—the case of Denmark. Ind Corp Change 14(6):1145–1166

    Article  Google Scholar 

  • Schumpeter JA (1942) Capitalism, socialism and democracy. Unwin, London

    Google Scholar 

  • Simon HA, Bonini CP (1958) The size distribution of business firms. Am Econ Rev 48(4):607–617

    Google Scholar 

  • Stanley MHR, Amaral LAN, Buldyrev SV, Havlin S, Leschhorn H, Maass P, Salinger MA, Stanley EH (1996) Scaling behaviour in the growth of companies. Nature 379:804–806

    Article  Google Scholar 

  • Sutton J (1997) Gibrat’s legacy. J Econ Lit 35(1):40–59

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Innovation and Organizational Economics, DRUID, Copenhagen Business School, Kilevej 14A, 2000, Frederiksberg, Denmark

    Toke Reichstein

  2. CEREBEM, BEM Bordeaux Management School, Talence, France

    Toke Reichstein

  3. Department of Business Studies, DRUID, Aalborg University, Aalborg, Denmark

    Michael S. Dahl

  4. Management Center Innsbruck (MCI), Innsbruck, Austria

    Bernd Ebersberger

  5. Department of Marketing and Statistics, Aarhus School of Business, Aarhus, Denmark

    Morten B. Jensen

Authors
  1. Toke Reichstein
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Michael S. Dahl
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Bernd Ebersberger
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Morten B. Jensen
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Toke Reichstein.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Reichstein, T., Dahl, M.S., Ebersberger, B. et al. The devil dwells in the tails. J Evol Econ 20, 219–231 (2010). https://doi.org/10.1007/s00191-009-0152-x

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s00191-009-0152-x

Keywords

JEL Classification

Search

Navigation