The Relationship Between Firm Size and Firm Growth: The Case of the Czech Republic

Abstract

This paper deals with the investigation of the relationship between firm size and firm in the Czech Republic during 2007–2012. The study aims to examine to what extent the confirmation or rejection of Gibrat’s law depends on the indicator of firm size. For measuring firm size we use three indicators: revenues, number of employees and total assets. The study uses data collected from the database Albertina CZ Gold Edition. Final dataset includes the data about more than 35,000 firms. The validity of Gibrat’s law was tested with the help of linear regression model with first-order autoregressive process. Gibrat’s law is rejected for all three indicators of firm size. Hence, the selected indicator of firm size is not proved to be important factor in verification of Gibrat’s law validity. It is also found out that the small firms in profit industries (A-N according to CZ-NACE classification) grow faster than their larger counterparts in the Czech Republic.

Keywords

• firm growth
• firm size
• Gibrat’s law
• Law of proportionate effect
• OLS estimator