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

M. Capasso, E. Cefis

Research output: Contribution to journalArticleAcademicpeer-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 languageEnglish
Pages (from-to)193-205
JournalReview of Industrial Organization
Volume41
Issue number3
DOIs
Publication statusPublished - 1 Jan 2012

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