On the Stylized Fact of the Firm Size Distribution

Abstract

Due to truncated datasets and flawed statistical methods, the firm size distribution (FSD) does not yet have its undisputed stylized fact. Using comprehensive data on Belgian private firms, this paper proposes to estimate and test a new parametric distribution, called Generalized Pareto with cutoff (GPwC), and compare it to the commonly used Pareto and lognormal distributions. Our statistical test and graphical representations show that the GPwC is the best approximation of the entire Belgian FSD. This suggests that such a distribution is generated by a stochastic model that varies with firm size.