HUI Working Papers, HUI Research
Does Gibrat’s Law Hold for Swedish Energy Firms?
Abstract: Gibrat’s law predicts that firm growth is purely random
and should be independent of firm size. We use a random effects–random
coefficient model to test whether Gibrat’s law holds at the firm level in
the Swedish energy market. No study has investigated whether Gibrat’s law
holds for individual firms in the energy sector. The present results
support the claim that Gibrat’s law is more likely to be rejected ex ante
when an entire firm population is considered, but more likely to be
confirmed ex post after market selection has “cleaned” the original
population of firms or when the analysis treats more disaggregated data.
From a theoretical viewpoint, the results are consistent with models based
on passive and active learning, indicating a steady state in the firm
expansion process and that, before it is achieved, Gibrat’s law is violated
in the short term, but holds in the long term when firms have reached a
“steady state”. These results indicate that approximately 70% of firms in
the Swedish energy sector are in steady state, with only random
fluctuations in size around that level over the 15 studied years.
Keywords: firm size; firm growth; random coefficient; energy sector; (follow links to similar papers)
JEL-Codes: D22; L11; L25; L26; (follow links to similar papers)
23 pages, January 29, 2014
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