Abstract
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Is risk important in explaining differences in profitability across firm size classes? This study uses a longitudinal firm-level dataset to examine determinants of profitability by firm size, with an emphasis on risk, or the volatility in rates of return. It builds on previous research that found firms with 10 to 20 employees tend to be the most profitable. The results of a linear regression show that accounting for risk reduces the gap in rates of return between small and large firms, but does not eliminate it. The results of a quantile regression show that this is particularly the case for firms with the highest rates of return.
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