Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 214: Industry Differences in the Firm Size Distribution

Daniel Halvarsson ()
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Daniel Halvarsson: Ratio, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden

Abstract: This paper empirically examines industry determinants of the shape of Swedish firm size distributions at the 3-digit (NACE) industry level between 1999-2004 for surviving firms. Recent theoretical studies have begun to develop a better understanding of the causal mechanisms behind the shape of firm size distributions. At the same time there is a growing need for more systematic empirical research. This paper therefore presents a two-stage empirical model, in which the shape parameters of the size distribution are estimated in a first stage, with firm size measured as number of employees. In a second stage regression analysis, a number of hypotheses regarding economic variables that may determine the distributional shape are tested. The result from the first step are largely consistent with previous statistical findings confirming a power law. The main finding, however, is that increases in industry capital and financial constraint exert a considerable influence on the size distribution, shaping it over time towards thinner tails, and hence fewer large firms.

Keywords: Firm size distribution; Zipf's law; Gibrat's law

JEL-codes: D22; L11; L25

38 pages, August 21, 2013

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