The effect of size on growth of firms: An investigation for Turkey

The growth of firms is one of the most investigated topics of the financeliterature. There are many factors that influence the growth of firms. Firm size is themost discussed factor with regarding to this topic. Gibrat (1931) is accepted as the firstresearch on the effect of firm size to firm growth. Gibrat (1931) argues that, the growthrate of a given firm is independent of its size. This result is firmly known as ?Gibrat?slaw? or ?law of proportionality?. The purpose of this study is to investigate therelationship between firm growth and firm size according to Gibrat?s Law. In this study,sample period extends from 1997 to 2006 with a yearly basis, and includes IstanbulChamber of Industry (ICI) 1000 companies. Number of employment, net assets, capitalemployed, and sales volume at firm level are taken as proxies for firm size separately.For testing Gibrat?s law, cross sectional regression analysis, panel least squares,dynamic panel analysis are employed. Besides İSO 1000 companies are regrouped withvarious methods and the tests are repeated to investigate any change in results.According to results, small sized firms, grows faster than big sized firms. In a subsample of small firms the relatively smaller ones grows systematically faster thanothers, while in a sub sample of big firms the process of growth seems similar to eachother. Finally it is determined that Gibrat?s law fails to hold on ICI 1000.