Testing Gibrat’s Law: a Survey of Empirical Literature

Abstract

This paper analyses the main methods and results of academic researches testing Gibrat’s law – the assumption of stochastic nature of corporate growth rates. Four versions of the Law are considered depending on the type of tested sample: all firms in an industry, companies that survive over the entire time period, only largest firms and newcomers. Analysis of corporate dynamics both in developed and in emerging markets indicates that Gibrat’s law is likely to fail. Instead of being random, growth rates are determined by industry characteristics and firm-specific factors such as capital structure, R&D expenses, profitability etc. Gibrat’s Law is accepted in some cases for large and mature companies but completely fails for newcomers. Thus, this conception can be viewed as a benchmark for researches in area of corporate growth but not as a strict regularity describing existing firm dynamics. Popovidchenko Marina Georgievna - 1st year graduate student, Department of Economics, Higher School of Economics, Master’s programme “Strategic corporate finance”. E-mail: mpopovidchenko@gmail.com