Why do some firms survive and grow and others do not? Is Gibrat’s Law still valid? This is an ongoing debate in industrial organization and management since Gibrat published in 1931. Gibrat (1931) suggested firm growth is independent of firm size and is by chance. However, recent studies call for chance to be supplemented by deterministic models. We considered determinants of firm growth. Specifically, we examined whether firm growth is explained by firm size, firm profitability, firm leverage, firm agency costs, and firm R&D intensity. Also, persistence of firm growth was considered. Evidence was based on a balanced panel data set obtained from Compustat annually for 1991-2015. Data consisted of 82 surviving U.S. public companies in the industrial economic sector. Empirical analysis involved panel econometric techniques like pooled ordinary least squares, random effects models, fixed effects models, and system Generalized Method of Moments methodology. We find that firm growth is not independent of firm size; therefore, Gibrat’s Law does not hold. We find that a significant, positive relationship exists between firm research and development intensity and firm growth. We find that a significant, negative relationship exists between profitability measured by ROA, firm leverage, firm agency costs and firm growth. Finally, we conclude that firm growth persists.
|Commitee:||Christian, John C., Kang, Heesam|
|School:||Trident University International|
|School Location:||United States -- California|
|Source:||DAI-A 79/03(E), Dissertation Abstracts International|
|Subjects:||Accounting, Business administration, Economic theory|
|Keywords:||Firm agency costs, Firm growth, Firm leverage, Firm profitability, Firm research and development intensity, Firm size|
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