IDEAS home Printed from https://ideas.repec.org/p/ivi/wpasad/2002-19.html
   My bibliography  Save this paper

From Gibrat'S Legacy To Gibrat'S Fallacy. A Bayesian Approach To Study The Growth Of Firms

Author

Listed:
  • Elena Cefis

    (Università di Bergamo)

  • Luigi Orsenigo

    (Università Bocconi)

  • Matteo Ciccarelli

    (Universidad de Alicante)

Abstract

We aim at testing Gibrat's Law, a building block of the corporate growth dynamics. Using a Bayesian statistical framework that nests previous approaches, we provide evidence against Gibrat's law on average, within or across industries. Notwithstanding, data show only weak evidence of mean reversion, i.e. initial larger firms do not grow relatively slower than smaller firms. Moreover, differences in growth rates and in size steady state are persistent and firm-specific. Previous results confirming Gibrat's argument are likely to be incorrect being based on models that do not exploit appropriately all information contained in a panel data set.

Suggested Citation

  • Elena Cefis & Luigi Orsenigo & Matteo Ciccarelli, 2002. "From Gibrat'S Legacy To Gibrat'S Fallacy. A Bayesian Approach To Study The Growth Of Firms," Working Papers. Serie AD 2002-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2002-19
    as

    Download full text from publisher

    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2002-19.pdf
    File Function: Fisrt version / Primera version, 2002
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. G. Urga & P. A. Geroski & S. Lazarova & C. F. Walters, 2003. "Are differences in firm size transitory or permanent?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 47-59.
    2. Cefis, Elena & Orsenigo, Luigi, 2001. "The persistence of innovative activities: A cross-countries and cross-sectors comparative analysis," Research Policy, Elsevier, vol. 30(7), pages 1139-1158, August.
    3. Sims, Christopher A., 1988. "Bayesian skepticism on unit root econometrics," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 463-474.
    4. Chib, Siddhartha & Greenberg, Edward, 1996. "Markov Chain Monte Carlo Simulation Methods in Econometrics," Econometric Theory, Cambridge University Press, vol. 12(3), pages 409-431, August.
    5. Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-581, June.
    6. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
    7. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    8. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-674, August.
    9. Goddard, John & Wilson, John & Blandon, Peter, 2002. "Panel tests of Gibrat's Law for Japanese manufacturing," International Journal of Industrial Organization, Elsevier, vol. 20(3), pages 415-433, March.
    10. S .G. Winter & Y. M. Kaniovski, 2000. "Modeling Industrial Dynamics with Innovative Entrants," Chapters, in: Innovation, Organization and Economic Dynamics, chapter 16, pages 459-500, Edward Elgar Publishing.
    11. Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 53-82.
    12. Klette, Tor Jakob & Moen, Jarle & Griliches, Zvi, 2000. "Do subsidies to commercial R&D reduce market failures? Microeconometric evaluation studies1," Research Policy, Elsevier, vol. 29(4-5), pages 471-495, April.
    13. Paul Geroski & Steve Machin & John Van Reenen, 1993. "The Profitability of Innovating Firms," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 198-211, Summer.
    14. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
    15. McCloughan, Patrick, 1995. "Simulation of Concentration Development from Modified Gibrat Growth-Entry-Exit Processes," Journal of Industrial Economics, Wiley Blackwell, vol. 43(4), pages 405-433, December.
    16. Pakes, Ariel & Ericson, Richard, 1998. "Empirical Implications of Alternative Models of Firm Dynamics," Journal of Economic Theory, Elsevier, vol. 79(1), pages 1-45, March.
    17. repec:bla:jindec:v:46:y:1998:i:4:p:453-88 is not listed on IDEAS
    18. Giulio Bottazzi & Giovanni Dosi & Marco Lippi & Fabio Pammolli & Massimo Riccaboni, 2000. "Processes of corporate growth in the evolution of an innovation-driven industry. The case of pharmaceuticals," LEM Papers Series 2000/05, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    19. Martin Neil Baily & Alok K. Chakrabarti, 1985. "Innovation and Productivity in U.S. Industry," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 609-639.
    20. Canova, Fabio & Marcet, Albert, 1995. "The Poor Stay Poor: Non-Convergence Across Countries and Regions," CEPR Discussion Papers 1265, C.E.P.R. Discussion Papers.
    21. Dietmar Harhoff & Konrad Stahl & Michaerl Woywode, 1998. "Legal Form, Growth and Exit of West German Firms—Empirical Results for Manufacturing, Construction, Trade and Service Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 453-488, December.
    22. Hsiao, C. & Pesaran, M. H. & Tahmiscioglu, A. K., 1998. "Bayes Estimation of Short-run Coefficients in Dynamic Panel Data Models," Cambridge Working Papers in Economics 9804, Faculty of Economics, University of Cambridge.
    23. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
    24. Chib, Siddhartha & Greenberg, Edward, 1995. "Hierarchical analysis of SUR models with extensions to correlated serial errors and time-varying parameter models," Journal of Econometrics, Elsevier, vol. 68(2), pages 339-360, August.
    25. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 671-698.
    26. Peter Hart & Nicholas Oulton, 1999. "Gibrat, Galton and Job Generation," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 149-164.
    27. repec:cup:etheor:v:12:y:1996:i:3:p:409-31 is not listed on IDEAS
    28. Ijiri, Yuji & Simon, Herbert A, 1974. "Interpretations of Departures from the Pareto Curve Firm-Size Distributions," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 315-331, Part I, M.
    29. 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.
    30. José Fariñas & Lourdes Moreno, 2000. "Firms' Growth, Size and Age: A Nonparametric Approach," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 17(3), pages 249-265, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. G. Bottazzi & E. Cefis & G. Dosi & A. Secchi, 2007. "Invariances and Diversities in the Patterns of Industrial Evolution: Some Evidence from Italian Manufacturing Industries," Small Business Economics, Springer, vol. 29(1), pages 137-159, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cefis, Elena & Ciccarelli, Matteo & Orsenigo, Luigi, 2007. "Testing Gibrat's legacy: A Bayesian approach to study the growth of firms," Structural Change and Economic Dynamics, Elsevier, vol. 18(3), pages 348-369, September.
    2. Lee, Chang-Yang, 2010. "A theory of firm growth: Learning capability, knowledge threshold, and patterns of growth," Research Policy, Elsevier, vol. 39(2), pages 278-289, March.
    3. Alex Coad, 2007. "Firm Growth: a Survey," Post-Print halshs-00155762, HAL.
    4. Daria Ciriaci & Pietro Moncada-Paternò-Castello & Peter Voigt, 2016. "Innovation and job creation: a sustainable relation?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 6(2), pages 189-213, August.
    5. D.B. Audretsch & L. Klomp & E. Santarelli & A.R. Thurik, 2004. "Gibrat's Law: Are the Services Different?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 24(3), pages 301-324, May.
    6. Giorgio Barba Navaretti & Davide Castellani & Fabio Pieri, 2014. "Age and firm growth: evidence from three European countries," Small Business Economics, Springer, vol. 43(4), pages 823-837, December.
    7. Matteo Richiardi, 2004. "Generalizing Gibrat: Reasonable Multiplicative Models of Firm Dynamics," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 7(1), pages 1-2.
    8. Daunfeldt, Sven-Olov & Elert, Niklas & Lang, Ã…sa, 2012. "Does Gibrat's law hold for retailing? Evidence from Sweden," Journal of Retailing and Consumer Services, Elsevier, vol. 19(5), pages 464-469.
    9. Geurts, Karen & Van Biesebroeck, Johannes, 2016. "Firm creation and post-entry dynamics of de novo entrants," International Journal of Industrial Organization, Elsevier, vol. 49(C), pages 59-104.
    10. Giulio Bottazzi & Angelo Secchi, 2006. "Explaining the distribution of firm growth rates," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 235-256, June.
    11. Aili Tang, 2015. "Does Gibrat’s law hold for Swedish energy firms?," Empirical Economics, Springer, vol. 49(2), pages 659-674, September.
    12. Ferrando, Annalisa & Martinez-Carrascal, Carmen & Coluzzi, Chiara, 2009. "Financing obstacles and growth: an analysis for euro area non-financial corporations," Working Paper Series 997, European Central Bank.
    13. Canarella, Giorgio & Miller, Stephen M., 2018. "The determinants of growth in the U.S. information and communication technology (ICT) industry: A firm-level analysis," Economic Modelling, Elsevier, vol. 70(C), pages 259-271.
    14. Almus, Matthias, 2001. "Das Wachstum junger Unternehmen: Eine Bestandsaufnahme 10 Jahre nach der Wiedervereinigung," ZEW Discussion Papers 01-40, ZEW - Leibniz Centre for European Economic Research.
    15. Marco Vivarelli, 2013. "Is entrepreneurship necessarily good? Microeconomic evidence from developed and developing countries," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(6), pages 1453-1495, December.
    16. Younsuk Park & Jaeun Shin & Taejong Kim, 2010. "Firm size, age, industrial networking, and growth: a case of the Korean manufacturing industry," Small Business Economics, Springer, vol. 35(2), pages 153-168, September.
    17. Coad, Alex & Segarra, Agustí & Teruel, Mercedes, 2013. "Like milk or wine: Does firm performance improve with age?," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 173-189.
    18. Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2009. "Defending Gibrat’s Law as a long-run regularity," Small Business Economics, Springer, vol. 32(1), pages 31-44, January.
    19. Sven-Olov Daunfeldt & Niklas Elert, 2013. "When is Gibrat’s law a law?," Small Business Economics, Springer, vol. 41(1), pages 133-147, June.
    20. Blandina Oliveira & Adelino Fortunato, 2006. "Testing Gibrat's Law: Empirical Evidence from a Panel of Portuguese Manufacturing Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(1), pages 65-81.

    More about this item

    Keywords

    Gibrat's Law; Panel Data; Heterogeneity; Bayesian Estimation;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ivi:wpasad:2002-19. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Departamento de Edición (email available below). General contact details of provider: https://edirc.repec.org/data/ievages.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.