Supersedes Working Paper 19-18 - The Firm Size and Leverage Relationship and Its Implications for Entry and Concentration in a Low Interest Rate World

A variety can die with a constant probability, implying that bigger firms (those with more varieties) have a lower coefficient of variation of sales and higher leverage. A lower risk-free rate benefits bigger firms more, as they are able to lever more and existing firms buy more of the new varieties arriving into the economy. This leads to lower startup rates and greater concentration of sales.