Institutional effects on the evolution of the size distribution of firms

In this paper it is argued that the size distribution of firms may largely be determined by institutional factors. This hypothesis is tested in an exp loratory fashion by studying the evolution of the size distribution of firm s over time in Sweden for a period spanning from the late 1960s to the earl y 1990s. The data used are divided into finer size classes compared to most previous studies. This gives more scope for investigating the impact of in stitutions. Moreover, we use a unique data set, starting in 1984, to take a ccount of corporate groups and government ownership. The analysis shows a p oor development for intermediate-sized (10-199 employees) firms. This is li kely to reflect the existence of a threshold that many firms are either unw illing or unable to cross. The analysis of the institutions and rules of th e game determining the entrepreneurial and business conditions in Sweden in dicate that the conditions have been unfavorable for small firms, and hence that too few small firms have managed to grow out of the smallest size cla sses. The conclusion is supported by an international comparison of the num ber of firms in different size classes. Data indicate that Sweden has fewer small (10-99 employees), and more large (500+) firms per capita than other European countries.