Size and The Growth of Firms.

Gibrat's law of proportionate effect states that the proportional change in the size of a firm is independent of its absolute size. An implication of this is that large and small firms have the same average proportionate rates of growth. Earlier studies of the growth of firms up to the early 1950's have found evidence to support the law. This paper shows that during the last decade the law has ceased to operate and that now large firms are growing at a significantly faster proportional rate than small firms. Concentration has been increasing in industry over a long period, for much of which Gibrat's law with all its implications held. The fact that growth was found to be independent of absolute size was not in conflict but was, rather, an explanation of the trend. The finding that larger firms are now the fastest growing suggests concentration is increasing at an even greater rate than when the law held. [ABSTRACT FROM AUTHOR]