Working paper No. 158. When is Gibrat’s Law a Law?

The purpose of this paper is to investigate if the industry context matters for whether Gibrat’s law is rejected or not using a dataset that consists of all limited firms in 5-digit NACE-industries in Sweden during 1998-2004. The results reject Gibrat’s law on an aggregate level, since small firms grow faster than large firms. However, Gibrat’s law is confirmed about as often as it is rejected when industry-specific regressions are estimated. It is also found that the industry context – e.g., minimum effcient scale, market concentration rate, and number of young firms in the industry – matters for whether Gibrat’s law is rejected or not.

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Daunfeldt, S-O., & Elert, N. (2010). When is Gibrat’s Law a Law? Ratio Working paper No. 158.