Firm creation and post-entry dynamics of de novo entrants

We show that within the same age cohort, growth rates of young firms are strongly increasing in firm size. This robust empirical pattern is confined to the initial years after entry; growth rates become independent of size as a cohort matures, as predicted by Gibrat’s law of proportionate growth. Both the initial pattern and the subsequent convergence are consistent with the framework of the passive learning model if young firms adjust their size only slowly to new information, for example due to financing or hiring frictions. Importantly, we focus our analysis on firms that enter de novo. We distinguish them from pre-existing firms that merely re-enter an administrative dataset, for example following a restructuring or merger. The extremely narrow size distribution that we observe for de novo entrants provides further support for the passive learning model.