DP3045 On the Evolution of the Firm Size Distribution: Facts and Theory

Author(s): Luís M B Cabral, José Mata
Publication Date: November 2001
Keyword(s): financing constraints, firm growth, firm size distribution
JEL(s): L00
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3045

Using a comprehensive data set of Portuguese manufacturing firms, we show that the firm size distribution is significantly right-skewed, evolving over time toward a log-normal distribution. We also show that selection accounts for very little of this evolution. Instead, we propose a simple theory based on financing constraint. A calibrated version of our model does a good job at explaining the evolution of the firm size distribution.