Are large firms born or made? Evidence from developing countries

We compare the role of institutions versus firm characteristics at the time of creation of the firm in explaining size, growth, and productivity over firm life cycle using data from 139 developing countries. Initial firm characteristics, specifically size at birth, play a key role in predicting variation in firm size and growth over the firm life cycle, whereas country factors dominate in predicting variation in productivity. Older firms are larger and this is partly due to the selection of more efficient firms as evidenced by the Olley–Pakes size–productivity covariance. Our findings highlight the importance of initial founding conditions in shaping firm life cycles.