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.