Multi-plant firms and the heavy tail of firm size distribution

Abstract

The right tail of the firm size distribution has a heavy tail. The origin of this phenomenon, especially the specific characteristics of firms driving this pattern, remain a subject of extensive debate. Previous work has shown that plant size distribution has thinner tails than firm size distribution, indicating the role of multi-plant firms. However, we do not know whether this phenomenon is simply a mechanical effect arising from aggregation across multiple plants or whether the plants of multi-plant firms are different from those of single-plant firms. Using novel data with plant-to-firm mapping, we document that plants of multi-plant firms are more heavy-tailed than single-plant firms, indicating the dominance of the selection effect at the intensive margin. Extensive margin via aggregation of sales at the firm level plays a less crucial role than the selection effect. Importantly, single-plant exporters have a thinner tail than multi-plant non-exporters, suggesting a more dominant role of multi-plant identity than export identity in explaining heavy tails.