Rev Ind Organ (2007) 31:303–328
Firm Growth Under Sample Selection: Conditional
σ -Convergence in Firm Size?
Published online: 18 April 2008
© Springer Science+Business Media, LLC. 2008
Abstract 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, learn-
ing 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
Keywords Growth of ﬁrms · Sample selection · Conditional β- and σ -convergence
Concerning large company performance, stylized fact number 2 mentioned by Geroski
(1998) maintains that “corporate growth rates really are very nearly random”. Never-
theless, a myriad of studies ﬁnd significant determinants of ﬁrm growth.
important determinants seem to be initial ﬁrm size, company age, ﬁnancial constraints,
organizational capabilities, managerial limits to growth, and market characteristics
See Audretsch et al. (2004), Caves (1998), Fotopoulos and Louri (2004), Geroski (1998, 1999), Hart
(2000), and Sutton (1997) for an overview.
M. Pfaffermayr (
Department of Economics, University of Innsbruck, Universitaetsstr. 15, 6020 Innsbruck, Austria
Austrian Institute of Economic Research, Vienna, Austria
CESifo, Munich, Germany