The Firm Size Distribution and Inter-Industry Diversification

We show that the stylized facts of the Firm Size Distribution (FSD) by age cohorts, as shown in Cabral and Mata (2003), bind within 4-digit manufacturing industries in the UK and Belgium. This paper investigates whether the time to build a portfolio of products from inter-industry diversification is a mechanism that helps explain the stylized facts of the FSD by age cohorts. We find that the degree of inter-industry diversification has a separate impact on firm size when controlling for age, amongst other factors. Using the techniques of Cabral and Mata, we find that inter-industry diversification does shift the FSD to the right, and more so in older age groups.