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Does Gibrat's Law hold among young, small firms?

Author

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  • Francesca Lotti
  • Enrico Santarelli
  • Marco Vivarelli

Abstract

According to Gibrat's Law of Proportionate Effect, the growth rate of a given firm is independent of its size at the beginning of the examined period. Aimed at extending this line of investigation, the present paper uses quantile regression techniques to test whether Gibrat's Law holds for new entrants in a given industry: that is for new small firms in the early stage of their life cycle. The main finding is that for some selected industries in Italian manufacturing Gibrat's Law fails to hold in the years immediately following start-up, when smaller firms have to rush in order to achieve a size large enough to enhance their likelihood of survival. Conversely, in subsequent years the patterns of growth of new smaller firms do not differ significantly from those of larger entrants, and the Law therefore cannot be rejected. Copyright Springer Verlag Berlin/Heidelberg 2003

Suggested Citation

  • Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2003. "Does Gibrat's Law hold among young, small firms?," Journal of Evolutionary Economics, Springer, vol. 13(3), pages 213-235, August.
    • Handle: RePEc:spr:joevec:v:13:y:2003:i:3:p:213-235
    DOI: 10.1007/s00191-003-0153-0
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