Firm size and growth rate variance: the effects of data truncation

M. Capasso; E. Cefis

doi:10.1007/s11151-012-9350-z

Firm size and growth rate variance: the effects of data truncation

M. Capasso, E. Cefis^*

^*Corresponding author for this work

Macro, International & Labour Economics

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

This paper discusses the effects of the existence of natural and/or exogenously imposed thresholds in firm size distributions on estimations of the relation between firm size and the variance in firm growth rates. We argue that these estimations are upwardly biased whenever the threshold operates on the same proxy that is used to calculate the growth rates. We show the potential impact of the bias on simulated data, suggest a methodology to improve these estimations, and present an empirical analysis on dutch firms. The only stable relation that emerges is the negative relationship between firm size and growth rate variance.

Original language	English
Pages (from-to)	193-205
Journal	Review of Industrial Organization
Volume	41
Issue number	3
DOIs	https://doi.org/10.1007/s11151-012-9350-z
Publication status	Published - 1 Jan 2012

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10.1007/s11151-012-9350-zLicence: CC BY

Cite this

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title = "Firm size and growth rate variance: the effects of data truncation",

abstract = "This paper discusses the effects of the existence of natural and/or exogenously imposed thresholds in firm size distributions on estimations of the relation between firm size and the variance in firm growth rates. We argue that these estimations are upwardly biased whenever the threshold operates on the same proxy that is used to calculate the growth rates. We show the potential impact of the bias on simulated data, suggest a methodology to improve these estimations, and present an empirical analysis on dutch firms. The only stable relation that emerges is the negative relationship between firm size and growth rate variance.",

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AB - This paper discusses the effects of the existence of natural and/or exogenously imposed thresholds in firm size distributions on estimations of the relation between firm size and the variance in firm growth rates. We argue that these estimations are upwardly biased whenever the threshold operates on the same proxy that is used to calculate the growth rates. We show the potential impact of the bias on simulated data, suggest a methodology to improve these estimations, and present an empirical analysis on dutch firms. The only stable relation that emerges is the negative relationship between firm size and growth rate variance.

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