Growing Large or Growing old? A New Perspective on the Firm Life Cycle

We use a comprehensive administrative panel of Belgian firms to investigate the main driving forces that shape the firm life cycle. The richness and quality of the micro data on firm revenues allows us to avoid statistical bias arising from bundling domestic and foreign sales, first year calendar aggregation, merger and acquisitions, foreign ownership etc. We go beyond the existing literature in documenting in detail the dynamic patterns of firm size (revenues) by firm age and size: exit rate, the first four moments of the growth rate distribution, and autocorrelation of revenues in both log levels and log differences. This evidence reveals sharp departures from the canonical model of firm growth, where the driving force is a one-dimensional idiosyncratic Markov process. It points, instead, to models where learning is the driving force of firm growth, thus firm age plays an independent role, and observed patterns of firm dynamics by age do not arise only from selection by exit.