Gibrat’s law and liquidity constraints: evidence from Malaysia industrial sector companies

Gibrat’s Law, or the Law of Proportionate Effect (LPE), presupposes that the growth rate of a given company is independent of its initial size. While older studies have a tendency to confirm the LPE, recent studies generally reject it. Only very few empirical studies have examined the validity of Gi...

Full description

Bibliographic Details
Main Authors:	Harkati, Rafik, Mohamad, Azhar
Format:	Article
Language:	English English
Published:	IIUM Press 2016
Subjects:	HG Finance HG178 Liquidity
Online Access:	http://irep.iium.edu.my/53399/ http://irep.iium.edu.my/53399/ http://irep.iium.edu.my/53399/1/53399_Gibrat%E2%80%99s%20law%20and%20liquidity%20constraints.pdf http://irep.iium.edu.my/53399/7/53399__Gibrat%E2%80%99s%20law%20and%20liquidity_WOS.pdf

id	iium-53399
recordtype	eprints
spelling	iium-533992017-10-17T05:24:08Z http://irep.iium.edu.my/53399/ Gibrat’s law and liquidity constraints: evidence from Malaysia industrial sector companies Harkati, Rafik Mohamad, Azhar HG Finance HG178 Liquidity Gibrat’s Law, or the Law of Proportionate Effect (LPE), presupposes that the growth rate of a given company is independent of its initial size. While older studies have a tendency to confirm the LPE, recent studies generally reject it. Only very few empirical studies have examined the validity of Gibrat’s Law in developing countries, with most studies focused on developed countries. In this study, we investigated the validity of the LPE in Malaysia. We also investigated whether liquidity constraints have any influence on firm growth and firm growth-size dynamics. By employing the Generalized Method of Moments (GMM) system to estimate a panel data model of the firm growth of 210 firms that were part of the Malaysian industrial sector from 2005 to 2014, we found that Gibrat’s Law was invalid and liquidity constraints had no role in explaining both the firms’ growth and growth-size dynamics, whereas age was found to positively affect the firms’ growth. IIUM Press 2016 Article PeerReviewed application/pdf en http://irep.iium.edu.my/53399/1/53399_Gibrat%E2%80%99s%20law%20and%20liquidity%20constraints.pdf application/pdf en http://irep.iium.edu.my/53399/7/53399__Gibrat%E2%80%99s%20law%20and%20liquidity_WOS.pdf Harkati, Rafik and Mohamad, Azhar (2016) Gibrat’s law and liquidity constraints: evidence from Malaysia industrial sector companies. International Journal of Economics, Management and Accounting, 24 (2). pp. 135-161. E-ISSN 2462-1420 http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/357
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English English
topic	HG Finance HG178 Liquidity
spellingShingle	HG Finance HG178 Liquidity Harkati, Rafik Mohamad, Azhar Gibrat’s law and liquidity constraints: evidence from Malaysia industrial sector companies
description	Gibrat’s Law, or the Law of Proportionate Effect (LPE), presupposes that the growth rate of a given company is independent of its initial size. While older studies have a tendency to confirm the LPE, recent studies generally reject it. Only very few empirical studies have examined the validity of Gibrat’s Law in developing countries, with most studies focused on developed countries. In this study, we investigated the validity of the LPE in Malaysia. We also investigated whether liquidity constraints have any influence on firm growth and firm growth-size dynamics. By employing the Generalized Method of Moments (GMM) system to estimate a panel data model of the firm growth of 210 firms that were part of the Malaysian industrial sector from 2005 to 2014, we found that Gibrat’s Law was invalid and liquidity constraints had no role in explaining both the firms’ growth and growth-size dynamics, whereas age was found to positively affect the firms’ growth.
format	Article
author	Harkati, Rafik Mohamad, Azhar
author_facet	Harkati, Rafik Mohamad, Azhar
author_sort	Harkati, Rafik
title	Gibrat’s law and liquidity constraints: evidence from Malaysia industrial sector companies
title_short	Gibrat’s law and liquidity constraints: evidence from Malaysia industrial sector companies
title_full	Gibrat’s law and liquidity constraints: evidence from Malaysia industrial sector companies
title_fullStr	Gibrat’s law and liquidity constraints: evidence from Malaysia industrial sector companies
title_full_unstemmed	Gibrat’s law and liquidity constraints: evidence from Malaysia industrial sector companies
title_sort	gibrat’s law and liquidity constraints: evidence from malaysia industrial sector companies
publisher	IIUM Press
publishDate	2016
url	http://irep.iium.edu.my/53399/ http://irep.iium.edu.my/53399/ http://irep.iium.edu.my/53399/1/53399_Gibrat%E2%80%99s%20law%20and%20liquidity%20constraints.pdf http://irep.iium.edu.my/53399/7/53399__Gibrat%E2%80%99s%20law%20and%20liquidity_WOS.pdf
first_indexed	2023-09-18T21:15:33Z
last_indexed	2023-09-18T21:15:33Z
_version_	1777411538458509312

Gibrat’s law and liquidity constraints: evidence from Malaysia industrial sector companies

Similar Items