Testing the Gibrat’s Law: A Dynamic Panel Analysis of Firm Size and Firm Growth Nexus in Nigeria

Abstract

The Gibrat’s law posits that firm growth is dependent only on stochastic or random factors but independent of firm size. This study uses balanced micro panel data and applies the dynamic Generalized Method of Moment (GMM) estimator to ascertain the veracity of this claim with respect to Nigeria. Employing a sample of 63 non-financial firms quoted on the Nigerian Stock Exchange (NSE) between 2012 and 2016, this study provides evidence of a negative robust nexus between firm size and firm growth during the period under investigation. By implication, small firms grow faster than larger firms. Moreover, the existence of other predictors of firm growth, such as previous year’s growth, internal finance, leverage, management efficiency and previous year’s sales, further invalidates the Gibrat’s law with respect to Nigeria. Public policy thus targeted at promoting firm growth in Nigeria should take cognizance of these facts.