Firm Size and Growth: Testing Gibrat's Law in the Nigerian Life Insurance Industry

The Gibrat's Law of Proportionate Effects (LPE) of 1931 states that a firm's size is irrelevant to its organic growth. This study tests this law in the Nigerian life insurance industry for the period of 2007-2014, sub-divided into 2007-2010 and 2011-2014; and on composite and life specialist insurers to account for both the time-varying and structural effects for the testing period. Additionally, it examines other determinants of firm growth in the industry. Using panel unit root test and generalized methods of moment (GMM) regression techniques, the study found that Gibrat's law does not hold in the entire industry and sub-samples over the entire period and the sub-periods. The results further indicate that smaller life insurers grow faster than bigger ones. In addition, while a firm's profitability has a positive association with its growth, age and reinsurance do not determine life insurers' growth in Nigeria. These findings provide further valuable insight on the determinants of life insurers' organic growth and the applicability of LPE in the financial service sector of developing economies. A paradigm shift from 'one-cap-fits-all' regulatory approach to more proactive policy measures aimed at spurring older firms' growth is recommended for accelerated growth and deeper penetration of the life insurance industry in Nigeria.