Firm Growth Under Sample Selection: Conditional σ-Convergence in Firm Size?

This paper tests the second, widely neglected implication of Gibrat’s law stating that the variance of firm size distribution increases over time. In contrast, learning models imply conditional σ-convergence in firm size. A unique data set of Austrian firms especially suited to account for sample selection effects is used to analyze the growth/size nexus of firms. The estimation results suggest that the predicted variance in firm size decreases only for firms of age 30 or below. For older age cohorts the hypothesis of a constant variance either cannot be rejected or increasing variances are found.