Global evidence on the distribution of economic profit rates

• We use global data to examine empirically the distribution of economic profit rates.
• We use the data to test eight theoretical distributions with EDF statistics.
• The consensus finding in the literature supports the Laplace distribution.
• We find economic profit rates are best fit by the heavier-tailed Cauchy distribution.

Gibrat (1931) initiated the study of the distribution of firms’ profit rates, suggesting the distribution was log-normal. Although initial empirical work supported that finding, a consensus has developed in the literature that the distribution of firm profit rates is best approximated by the Laplace distribution. Using a richer database than prior studies and testing for more theoretical distributions, we find that the distribution of firm profit rates is best approximated by the heavier-tailed Cauchy distribution.