engleski

Gibrats’s Law in Economic Transition Environment : Case Study of Croatian Hotel Industry

Gibrat‘s Law of Proportional Effect according to which 'expected value of the increment to a firm's size in each period is proportional to the current size of the firm' is the foundation of one of the most important strands in the literature on market structure (Sutton, Journal of Economic Literature, March 1997). However, as Audretsch, Klom, Santarelli, Thurik have warned (Gibrat's Law: Are the Services Different, Review of Industrial Organization 22(3), 2004) virtually all knowledge about the validity of Gibrat's Law comes from manufacturing, with the authors, at the same time, analyzing the reasons why the services sector should differ. Study of the Law of Proportional Effect, as well as of the general determinants of company growth within the services sector and, specifically, within the hospitality industry, is still limited. Moreover, studies dealing with the growth processes of service and/or hospitality firms are limited to a relatively small number of countries. This study tests the Law of Proportional Effects on all Croatian hospitality firms which have remained in operation throughout the 1997 to 2008 period (encompassed are firms large enough to exceed the minimum efficient scale level of output). This being a period of restructuring and privatization during the transition phase of Croatia‘s economy, the applicability of the Law is tested on three groups of firms with differing ownership structure. Included are: privatized and majority private companies, privately established companies and companies under majority state ownership. Data available on the Croatian hotel company performance allow for the establishment of the panel data base, that is a data base containing time and cross section components of chosen variables. In addition to many advantages in comparison to cross section and time data (Baltagi, Econometric Analysis of Panel Data, 2005), panel data require the use of specific econometric techniques. Since the multiple linear model explaining the size of Croatian hotel companies, which is used for testing the null hypothesis that company growth is independent of company size regardless of the company ownership, has characteristics of a dynamic model, as company size is linked to the company size with one time lag, the Arellano-bond GMM estimator has been selected as the appropriate one. The influence of ownership on applicability of Gibrat‘s Law is determined through dummy variables allowing for different slopes, whereas ownership as a qualitative variable is included in the model with three ownership status modalities. Estimated parameters of dynamic model and the calculated elasticity of company size changes to company size with one time lag allow for the rejection of the established null hypothesis and point to the conclusion that smaller companies achieve higher growth rates than larger companies in all analyzed ownership modalities. Furthermore, relationship between company size (measured in company revenue) in different points of time shows that achieved 139 market position and market penetration are important factors of company size and growth explaining to the largest extent changes in company size. It is privatized and majority private companies which utilize the achieved market position and their relation with customers to the greatest extent, followed by privately established companies and then by firms under majority state ownership.

Gibrat's law ; Transition ; Croatia ; Hotel Industry

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