On the increasing inequality in size distribution of China's listed companies

•The size distribution of China's listed companies measured by Pareto coefficients decreased from 2001 to 2013.•One possible reason for the decreasing of Pareto coefficients is that large firms grow faster in China.•The non-tradable shares reform and 2008 global financial crisis have great effects on the firm size-growth relationship.•Newly listed companies also contribute to the decrease of the Pareto coefficients.

This paper studies the temporal evolution of the size distribution of China's listed companies. We first identify a Pareto distribution for the upper-tail distribution. Unexpectedly, we observe that overall the Pareto coefficients decreased over the years from 2001 to 2013, which has not been reported previously in the literature. In particular, the Pareto coefficients dropped significantly during 2001 to 2008, and then fluctuated at the lowest level after 2008. A decreasing Pareto coefficient implies that the firm size inequality of the China's listed companies continuously increases during these years. By analyzing the relationship between the growth and size of firms based on a panel data model, we find that one possible reason causing the Pareto coefficients to decrease is that large firms grow faster than small ones, which is in particularly true during the non-tradable shares reform period. Furthermore, estimation results of the panel data model show that after 2008 large firms grew not as fast as they would before 2008, indicating a possible negative outcome due to the global financial crisis, which affected the growth of large firms. In addition, we examine the newly listed companies and discover that the newly listed companies with size greater than the lower bound of Pareto distribution also contribute to the decrease of the Pareto coefficients.