Financial Constraints, Firm Growth and the Dynamics of U.S. Firm Size Distribution

Using data drawn from the universe of firms to avoid sample censoring problems, this paper finds financial constraints to be binding on mid-sized firms and those in construction and services sectors only. Growth of the majority of firms is unaffected by financial burdens. Firm size distribution remains highly skewed to the right, and is unchanged over the long run when entrants and exits are included. The negative size-growth relationship is conditional on sector, with convergence most rapid for the largest firms. We check the robustness of our findings by simulating out-of-sample firm size distribution