The Study of Factors Affecting Speed of Firm Size Adjustment in Iranian Manufacturing Industries

Various economic studies have shown that Minimum Efficient Scale (MES) varies in different industries and therefore economic firms enter in industries with different sizes. Nevertheless، firms attempt to reach the MES of the industry in a reasonable time to survive in an industry. From different point of view، the reasonable time can be evaluated with speed of adjustment. In fact، there is a significant relationship between the time and the speed of adjustment. Accordingly، this paper attempts to determine the speed of firm size adjustment in Iranian manufacturing industries at 4-digit ISIC code industry levels. Investigating the effect of various factors on the speed of adjustment is another goal of this paper. In this study، Comanor-Wilson method based on employment criteria is used for the estimation of MES. Using cross-sectional regression technique over three years، the coefficients of industry structure، technology levels and distance to MES at the time of entry is estimated on geometric mean of . The results of this study show that in contrast to the expectation، firms that are far away from MES، adjust themselves with slower speed. From policy point of view، the finding points to inability of Iranian manufacturing industries’ firms in achieving an appropriate speed of adjustment at the time of entry. Therefore، supportive policies are necessary for survival of new entrance firms during infancy.