On the mean/variance relationship of the firm size distribution: evidence and some theory

Abstract

In this paper we make use of firm-level data for a sample of European countries to prove the existence of a positive linear relationship between the mean and the variance of firms’ size, an empirical regularity known in mathematical biology as the Taylor power law. A computerized experiment is used to show that the estimated slope of the linear relationship can be fruitfully employed to discriminate among alternative theories of firms’ growth.Taylor power law; Firm size distribution; Stochastic growth