Tests of Alternative Theories of Firm Growth

Abstract:     
Investigates the relationship among firm growth, firm size, and firm age for U.S. manufacturing firms. Data were obtained from the Small Business Database, constructed by the U.S. Small Business Administration, and included approximately 20,000 manufacturing firms that operated between 1976 and 1982. Using the estimates from this study in addition to those included in companion studies, several key findings are made. First, firm growth is found to decrease with firm age when firm size remains a constant. This result is consistent with Jovanovic's theory of firm growth. Further, firm growth is shown to decrease with firm size. This is in contrast to prior research, which found that firm growth is independent of firm size (Gibrat's law). The results of the firm growth-firm size analysis also show that this relationship is highly nonlinear. (SRD)

Keywords: Gibrat's law of proportionate growth, Firm size, Firm age, Manufacturing firms, Firm growth

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