An empirical examination of firm growth in the MENA region through the lens of Gibrat's law

This study investigates firm growth in the Middle East and North African (MENA), a region which is relatively under studied. Our data consists of firms listed on the regional United Arab Emirates (UAE) stock exchanges, which constitute an emerging market with smaller and less developed exchanges than most Western countries. Empirical results reveal that smaller firms grew faster than larger firms with three exceptions. These occurred in energy, telecommunications, and industrial manufacturing sectors, which also exhibit higher firm ownership concentration and significant institutional ownership. In addition, firms with higher ownership concentration also exhibited a cashflow that is statistically significant in increasing firm growth. This finding is consistent with economic theories on the reduced agency costs and higher efficiencies associated with concentrated ownership. These findings contribute to the scholarly literature on growth as they extend the discussion to the drivers of growth in different institutional contexts. Plain English Summary This study examines the relationship between firm size and growth in the under studied Middle East and North African (MENA) region. Results suggest that similar to previous studies on Western firms, smaller firms grow faster than larger ones in the MENA region, with three notable industry exceptions. Firms in energy, telecommunications, and industrial manufacturing sectors show no clear relationship between size and growth. These industries also exhibit both higher ownership concentration and significant state ownership, which theory suggest may lead to lower agency costs, greater efficiency, and thus higher growth. Findings are significant for research and policy studies on firm growth and suggest that financing and governance structures may play a surprisingly important role in firm growth patterns.