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The Economics and Finance Letters

December 2020, Volume 7, 2, pp 85-91

Testing the Validity of Gibrats Law in the Context of Profitability and Leverage

Ibrahim Nandom Yakubu

Ibrahim Nandom Yakubu 1


  1. PhD Student, Department of Banking and Finance, Ankara Yildirim Beyazit University, Turkey. 1

on Google Scholar
on PubMed

Pages: 85-91

DOI: 10.18488/journal.29.2020.72.85.91

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Article History:

Received: 07 April, 2020
Revised: 11 May, 2020
Accepted: 16 June, 2020
Published: 02 July, 2020


Abstract:

This study seeks to test the validity of Gibrat’s Law of Proportionate Effect for listed firms in Ghana over the period 2008-2017. The study also investigates whether firms’ profitability and leverage affect the validity of Gibrat’s Law. Employing the fixed effects regression technique, the results show that Gibrat’s Law does not hold for all firms when the effect of firm size on growth is directly examined. In the presence of profitability, Gibrat’s Law is valid for both financial and non-financial firms. The findings further observe that, while Gibrat’s Law holds for non-financial firms in the presence of leverage, it is rejected for financial firms. Given the direct and significant impact of size on firm growth, the study concludes that Gibrat’s proposition that the growth rate of a given firm is independent of its size does not hold for listed firms in Ghana. The study discusses relevant recommendations based on the findings.
Contribution/ Originality
This study seeks to test the validity of Gibrat’s Law of Proportionate Effect for listed firms in Ghana over the period 2008-2017.

Keywords:

Gibrats law, Firm size, Growth, Profitability, Leverage, Ghana.

Reference:

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Statistics:

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Funding:

This study received no specific financial support.

Competing Interests:

The author declares that there are no conflicts of interests regarding the publication of this paper.

Acknowledgement:


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