Fitting Pareto II Distributions on Firm Size: Statistical Methodology and Economic Puzzles

Through the Forward Search we fit iteratively the Pareto II distribution to firm size data. In particular, a threshold is fixed to the fit of the Pareto II distribution through a progressive adaptation technique, performing at each iteration the chi-square test to check for the acceptance of the null. Yearly Zipf-Plots of the truncated empirical distribution with superimposed theoretical Pareto II distribution highlight the adherence of the estimates to data for different size ranges. Possible economic interpretations of the results are then provided, referring in particular to the role of the stock market in shaping firm size distribution and to the firm size effect [Banz, 1981], [Reingaum, 1981]. More in general, we discuss possible implications of introducing our methodology in macroeconomic models