A study on firm size distribution of the service sector and manufacturing sector

Abstract

Purpose – This study aims to estimate the firm size distributions that belong to the service sector and manufacturing sector in Korea. Design/methodology/approach – When estimating the firm size distribution, the author considers the following two major factors. First, the firm size distribution can have a gamma distribution rather than traditional accepted distributions such as Pareto distribution or log-normal distribution. In particular, industry-specific enterprises can have different size distributions of the type of gamma distribution. Second, the firm size distribution that is applied to this study’s data set should reflect a number of factors. For example, estimating mixture gamma distribution for firm size distribution should be required and compared, because the total amount of configuration data is composed of small businesses, medium-sized and large companies. Findings – Using 8,230 number of firm data in 2013, the author estimates mixture gamma distribution for the firm size. Originality/value – From the comparison, empirical results are found for the following characteristics of core firm size distribution: first, the firm size distribution of the manufacturing sector has a longer tail than firm size distribution of the service sector. Second, the manufacturing firm size distribution dominates the entire country firm size distribution. Third, one factor among the three factors that make up the mixed gamma firm size distribution is described for 99 per cent of the firm size distributions. From the estimated firm size distributions of the service sector and manufacturing sector in Korea, the author simply implies the strategy and policy implications for the start-up firm. Keywords Firm size distribution, Pareto distribution, Log-normal distribution, Gamma distribution, Mixture gamma distribution, Business start-ups Paper