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. As in Klepper and Thompson (2006) and Sutton (1998), we explore whether time to
build a portfolio of products is a mechanism that relates age to firm size. While inter industry
diversification, to some extent, accounts for the role of age, we find that the presence of
economies of scope has a separate impact on firm size when controlling for age, amongst
other factors. Using the techniques in Cabral and Mata’s we show that the FSD by degrees of
product diversification shifts to the right, but more so in older age groups. This shows a role
for inter-industry diversification over and above an age effect.