On the distributional properties of size, profit and growth of Icelandic firms

Abstract

In this paper, we analyze the distributional properties of the balance sheets of Icelandic firms by performing an empirical analysis of total assets, profit rates and growth rates using a data set of 2818 Icelandic firms during the period 2000-2009. We find that the firms size measure, i.e. total assets, have the same heavy tail characteristics as various studies have shown, e.g. for U.S. and Italian firms. The heavy tail nature of the total assets distribution seems to be robust w.r.t. a boom-bust cycle of the economy as well as special characteristics of Icelandic firms, e.g. their relatively small size and private ownership. Another important finding is that the profit rates, or return on assets, of Icelandic firms follow a Laplace like distribution similar to U.S. firms. Additionally, we identified deviations from the distributional regularities, namely the power law behavior of firms' size and laplacian distributions of growth and profit rates, during the booming period of the economy 2005-2007.

Exploiting ergodicity in forecasts of corporate profitability

“…The annual crosssectional profit rate distributions exhibit considerable excess kurtosis, that is fatter tails than the normal distribution, which is confirmed by the Anscombe and Glynn (1983) test that clearly rejects the null hypothesis of zero excess kurtosis at any level of significance, as shown in Table 9 of Appendix A; various goodness-of-fit tests reject the null hypothesis of normally distributed profit rates for all except one of the 37 annual cross-sectional distributions at the five percent level. Altogether, these empirical observations support the hypothesis of a symmetric leptokurtic profit rate distribution, which has previously been found to approximately follow a double-exponential or Laplace distribution (see, e.g., Al- farano and Milaković, 2008; Alfarano et al, 2012;Erlingsson et al, 2012). Turning to the time-series properties, the autocorrelation coefficients that are plotted in Figure 1 suggest that profit rates are positively correlated.…”

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“…Growth in various measures of size such as gross sales, total assets or number of employees for the whole range of firms has also been shown to be fattailed with relatively frequent extreme events, where empirical growth rate densities display a characteristic 'tent shape' on a semi-logarithmic scale, implying an exponential power functional form (Amaral et al 1997;Bottazzi et al 2001Bottazzi et al , 2002Bottazzi andSecchi 2005, 2006;Alfarano and Milaković 2008;Bottazzi et al 2011;Erlingsson et al 2013;Mundt et al 2015). These distributions have frequently been identified as Laplacian (Kotz et al 2012), which though has recently been challenged theoretically and empirically (Mundt et al 2015).…”

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