Re-examination of the size distribution of firms

TL;DR

This study compares the size distributions of Japanese and US firms using Bloomberg data, revealing log-normal distribution for US firms and Pareto law for Japanese firms, highlighting differences in firm growth patterns.

Contribution

It provides a comparative analysis of firm size distributions across countries, showing distinct statistical behaviors and validating theoretical models.

Findings

US firm sizes follow a log-normal distribution.

Japanese firm sizes exhibit Pareto tail behavior.

Differences align with Gibrat's law and Simon model predictions.

Abstract

In this paper we address the question of the size distribution of firms. To this aim, we use the Bloomberg database comprising multinational firms within the years 1995-2003, and analyze the data of the sales and the total assets of the separate financial statement of the Japanese and the US companies, and make a comparison of the size distributions between the Japanese companies and the US companies. We find that (i) the size distribution of the US firms is approximately log-normal, in agreement with Gibrat's observation (Gibrat 1931), and in contrast (ii) the size distribution of the Japanese firms is clearly not log-normal, and the upper tail of the size distribution follows the Pareto law. It agree with the predictions of the Simon model (Simon 1955). Key words: the size distribution of firms, the Gibrat's law, and the Pareto law