FIRM SIZE – FIRM GROWTH RELATIONSHIP DURING ECONOMIC CRISIS

Abstract

The great recession of 2008 hit the entrepreneurial sector all over the world. Understanding the pattern of firms’ reactions in a time of global crisis is essential for developing an adequate crisis and post-crisis policy. Using a sample of 7,563 surviving Croatian firms in the manufacturing and hospitality industries over the six-year period of economic recession (2008-2013) and total assets as a measurement of firm size and growth, this study seeks to examine whether the law of proportionate effect can be confirmed in times of economic recession. The results of a two-step dynamic panel indicate the rejection of the law in both industries since asset growth is positively associated with the size of the firms. However, firms’ total assets dynamics differ across size classes and industries suggesting potentially different strategic decisions on asset utilization and/or investments