Disentangling the effects of organizational capabilities, innovation and firm size on SME sales growth

This paper focuses on certain drivers of SME sales growth related to knowledge and innovation. Building on the dynamic capabilities literature, we test whether two organizational capabilities (external sourcing and employee involvement in renewal activities) predict sales growth, and if so, whether such effects are mediated by process and/or product innovation. Based on survey data from a panel study of Dutch SMEs, and controlling for several firm characteristics (firm size, sector, age and family business), we conclude that external sourcing has direct effects on both product and process innovation, with an indirect effect (mediated by process innovation) on sales growth. In line with our hypothesis development, we also find that employee involvement, while positively affecting process innovation, has a negative effect on sales growth. Firm size moderates the effects of two of the variables (external sourcing and product innovation) on sales growth, with more positive effects found for the smallest firms, results supporting the nimbleness (versus resource-based) view.     

Does corruption boost or harm firms’ performance in developing and emerging economies? A firm-level study

In the last decade, a growing number of studies have addressed the ongoing debate about whether corruption “sands” or “greases” the wheels of business at the firm level. This study revisits this debate and proposes a comprehensive theoretical framework to test whether corruption harms or boosts firm performance, as well as the extent to which this relationship is mediated by the countries’ institutional settings, the size and strategic behaviour of the firms, and market competition. Based on a sample of 21,250 firms located in 117 emerging and developing countries, and resorting to instrumental variable (IV) estimations, three main results were found: (a) regardless of the proxy used for corruption and firm performance, the former clearly harms the latter; (b) corruption “greases the wheels” of business for African firms but it “sands the wheels” for firms in Latin America, the Caribbean, Eastern Europe, Central Asia, and Southern Asia; and (c) the negative impact of corruption on performance is mitigated for larger and exporting firms.     

Opportunism, corruption and the multinational firm's mode of entry

The paper develops a theoretical approach to the boundaries of the multi-national firm in the context of institutional constraints in host countries, focusing especially on corruption. The model incorporates two types of corruption: petty bureaucratic corruption and high-level political corruption. The model predicts that-in the absence of corruption-multinational firms will prefer FDI (internal expansion with strong control rights) to debt (arm's length expansion with loose control rights), the weaker the host country's ability to commit. However, both types of corruption shift the trade-off marginally toward debt. Cross-country panel empirical evidence supports these conclusions. Corruption has a second order marginal effect and matters mostly through its interaction with political risk.     

Variation in Corporate Governance and Firm Valuation – an International Study

In this paper, we investigate the types of firms that are likely to deviate from common practice in corporate governance of their home countries and examine how the deviation is correlated with firm value. Our results show that firms with higher institutional holdings, lower insider holdings, and higher sales growth are more likely to deviate from common practice in civil law countries, whereas, in common law countries, especially in the USA, firms with lower institutional holdings, higher insider holdings, and lower sales growth are likely to deviate from common practice. We document a strong positive correlation between governance deviation and firm value in civil law countries. This relationship is robust to different testing and sample selection methods. The results, however, are mixed for US firms and not significant in other common law countries. Using the deviation from common practice as a proxy of firm‐level impact on corporate governance, our results provide evidence that firm‐level effect matters in governance quality and the effect varies across countries.     

The Economic Contribution of High-Growth Firms: Do Policy Implications Depend on the Choice of Growth Indicator?

Prior studies have defined high-growth firms (HGFs) in terms of growth in firm employment or firm sales, and primarily analyzed their contribution to overall employment growth. In this paper we define HGFs using the commonly applied growth indicators (employment and sales), but also add definitions based on growth in value added and productivity. Our results indicate that HGFs in terms of employment are not the same firms as HGFs in terms of productivity, and that their economic contributions differ significantly. Economic policy promoting fast growth in employment may therefore come at the cost of reduced productivity growth. Although HGFs of different definitions may not be the same firms, young firms are more likely to be HGFs irrespective of definition. This suggests that economic policy should focus on the conditions for new firm formation and early growth of firms, rather than target a particular type of HGFs.     

Firm versus Sector Effects on Profitability and Growth: The Importance of Size and Interaction

In this study we contribute to the long‐standing debate on the impact of firm versus industry effects on firm performance in three distinct ways; firstly by testing the firm, industry and their interaction effects on performance, secondly by examining the impact of each effect for different size groups, and lastly by measuring performance in terms of sales growth in addition to profitability. We use data of 71,750 UK firms, between 2002 and 2004, and employ moderated regression analysis for three sub‐samples namely micro, SMEs and large firms. With regards to profitability, we find the interaction effect to be significant in all sub‐samples for broad level of industrial aggregation (SIC4). For narrow industrial aggregation (SIC2), the interaction effect is only significant for micro firms. Neither of the above effects is significant for sales growth.     

The Impact of Cross-Channel Integration on Retailers’ Sales Growth

The authors propose a conceptual framework to explain whether and under what firm-level conditions cross-channel integration impacts firm sales growth. To test the theory, the authors conduct a qualitative grounded-theory study to build a measurement tool for cross-channel integration at four levels and analyze longitudinal data on 71 publicly traded U.S. retail firms from 2008 to 2011, gathered from multiple secondary sources. The findings reveal that cross-channel integration stimulates sales growth, but that firm online experience and physical-store presence weaken this effect.     

Corruption and firm behavior: Evidence from African ports

This paper investigates how corruption affects firm behavior. Using an original and unusually rich dataset on bribe payments at ports matched to firm-level data, we observe how firms adapt to different types of corruption by adjusting their transport strategies. Our results suggest that firms respond to the price effects of corruption, organizing production in a way that increases or decreases demand for the public service.     

Corruption and firm behavior: Evidence from African ports

This paper investigates how corruption affects firm behavior. Using an original and unusually rich dataset on bribe payments at ports matched to firm-level data, we observe how firms adapt to different types of corruption by adjusting their transport strategies. Our results suggest that firms respond to the price effects of corruption, organizing production in a way that increases or decreases demand for the public service.     

Market power and systematic risk

This paper examines the relationship between market power variables and the systematic risk, beta, of a firm. The study controls for the effects of dividend policy, liquidity, and earnings growth. Market power is measured by firm size (both sales and assets), proportion of industry sales, and the industry's four-firm concentration ratio. The study finds only a weak relationship between individual firm market power and firm risk, but there is evidence of a strong negative relationship between industry concentration and the market risk of the firms in an industry. This indicates that firms in concentrated industries experience lower capital costs than firms in less-concentrated industries. The existence of limit pricing is suggested as an explanation for this finding.     

Exploring the link between innovation and growth in Chilean firms

We investigate the relation between the introduction of innovation and subsequent firm growth employing a dataset representative of the Chilean productive structure. By means of quantile treatment effects (QTE), we estimate the effect of the introduction of innovation by comparing firms with a similar propensity to innovate for different quantiles of the firm growth distribution. Our results indicate that process innovation positively affects sales growth for those firms located at the 75th and 90th percentiles. Contrarily, product innovation appears not to be a driver of firm performance. We also find that process innovation benefits mature firms at higher quantiles while it positively affects young firms located at low-medium quantiles.     

The great trade collapse and the Spanish export miracle: Firm‐level evidence from the crisis

We provide novel evidence on the microstructure of international trade during the 2008 financial crisis and subsequent global recession by exploring a rich firm‐level data set from Spain. The focus of our analysis is on changes at the extensive and intensive firm‐level margins of trade, as well as on performance differences (jobs, productivity and firm survival) across firms that differ in their export status. We find no adverse effects of the financial crisis on foreign market entry or exit, but a considerable increase in the export intensity of firms after the financial crisis. Moreover, we find that exporters were more resilient to the crisis than non‐exporters. Finally, while exporters showed a significantly more favourable development of total factor productivity after 2009 than non‐exporters, aggregate productivity declined substantially in a large number of industries in Spanish manufacturing. We also briefly explore two factors that might help explain the surprisingly strong export performance of Spain in the aftermath of the great trade collapse: improved aggregate competitiveness due to internal and external devaluation and a substitutive relationship between domestic and foreign sales at the firm level.     

Innovation,firm size,and firm age

This paper uses a new data set on innovation output to assess the degree to which the level of innovation in manufacturing firms is influenced by firm size and firm age. Indicators of innovation output used are the number of new products introduced as a function of firm sales and the proportion of firm sales obtained from products first introduced in the previous five years. While the evidence is mixed, the results tend to indicate that it is possible to separate the effects of age and size in assessing the level of innovation. Both firm size and firm age tend to be inversely related to innovative output.     

Working capital management,corporate performance,and financial constraints

This paper examines the linkage between working capital management and corporate performance for a sample of non-financial UK companies. In contrast to previous studies, the findings provide strong support for an inverted U-shaped relation between investment in working capital and firm performance, which implies the existence of an optimal level of investment in working capital that balances costs and benefits and maximizes a firm's value. The results suggest that managers should avoid negative effects on firm performance because of lost sales and lost discounts for early payments or additional financing expenses. The paper also analyzes whether the optimal working capital level is sensitive to alternative measures of financial constraints. The findings show that this optimum is lower for firms more likely to be financially constrained.     

Bending the rules,breaking the rules: How corruption and lobbying affect the investment market selection of Swedish firms

There is stark evidence that many policies which influence firm gains from engaging in FDI (such as tax and trade policies) are targeted by lobbying groups and that corruption can be an important determinant of market attractiveness. The scarce research that exists on firm behaviour, corruption and lobbying shows that these activities can be regarded as alternative, and interdependent, influence forms. This paper provides the novel contribution of investigating how the market infiltration of corruption and lobbying affects the firm's investment decision. We identify the interdependent effects using census data for Swedish manufacturing firms that allows a complete identification of the firm's market selection. Our results reveal that these private–public sector links influence the firm's investment decision differently, as market selection is deterred by corruption and stimulated by lobbying, and that they function as substitutes. We show that the stimulating lobbying effect largely can be attributed to its interdependency with corruption, which suggests that firms are more shielded from corruption in lobbying environments. Further investigation reveals that the corruption and lobbying effects are not always representative of larger firms: The largest firms are undeterred by corruption in markets where lobbying forms an integral part of the business environment and larger firms are not stimulated by lobbying in markets largely void of corruption.     

Knowledge spillovers and high-impact growth: Comparing local and foreign firms in the UK

This paper is concerned with entrepreneurial high-impact firms, which are firms that generate ‘both’ disproportionate levels of employment and sales growth, and have high levels of innovative activity. It investigates differences in the influence of knowledge spillovers on high-impact growth between foreign and local firms in the UK. The study is based on an analysis of data from UK Innovation Scoreboard on 865 firms, which were divided into ‘high-impact firms’ (defined as those achieving positive growth in both sales and employment) and low-impact firms (negative or no growth in sales or employment). More precisely, the paper investigates the influence of knowledge spillovers on high-impact growth of foreign and local firms, from regional, sectoral and firm size perspectives. The findings suggest that (1) firms’ access to regional knowledge spillovers (from businesses and higher education institutions) is more significantly associated with high-impact growth of local firms in comparison to foreign firms; (2) because knowledge spillovers are more likely to occur in high-tech sectors (compared to low-tech sectors), firms in high-tech sectors are more associated with high-impact growth. Nonetheless, the relationship is stronger for local firms compared to foreign firms; (3) because small firms have greater need for knowledge spillovers (relative to large firms), there is a negative relationship between firm size and high-impact growth, but the negative relationship is greater for UK firms in comparison to foreign firms. Implications are drawn for policy and research.     

New ventures and employment growth

The research studied the extent to which the employment size of a new firm is set the start, how many subsequently grow, and whether those that survive and grow have any identifiable characteristics. Answers to these questions would help to determine whether future assistance programs aimed at improving the performance of new firms should concentrate on the actual start-up process or on the first few years of trading.The study was pan of a series conducted in St. Joseph County, Indiana, a county that had experienced the same economic decline as the rest of the midwest, rust-belt of the United States. It formed part of a community effort, named Project Future, to develop a strategy for industrial regeneration. The series first examined the characteristics of the new firm population during the years 1976–1982 (Birley 1985, 1986), and two results emerged that were pertinent to this study. First, 92% of the firms that ceased trading in the first two years were the smaller ones, employing less than 20 people: second, the entrepreneur in the county tended to use only the informal networks of family and friends when gathering the resources of the firm, rather than the formal networks of accountants, lawyers, realtors, and banks. The question that remained, therefore, and which formed the basis of this article, was the extent to which it was possible to identify, and thus focus the strategy upon, those firms or industrial sectors that exhibited growth characteristics. Three research questions were posed: how many tended to grow during the first few formative years; what was the rate of growth and on what dimensions did it occur; and when did growth occur—were there differences in the growth of firms of different ages?The primary measure of growth used was that of employment. For both the start of the firm and at the time the questionnaire was administered (1983), data were collected on the number of owners, part-time and full-time, and on the number of employees both part-time and full-time and on their level of skill. Financial data included sales level, profits level, and forecast sales trend. Indicators of possible change were either an altered legal structure or a move of premises. Control variables included incubator characteristics, industry, and supplier and customer geographic base.The results of the study show that, for the majority of the firms, employment size was set at the start. No aggregate growth occurred in either full-time or part-time jobs, nor was there any apparent age effect. During the six years studied, firms that had increased the number of employees were of all ages. Those firms that grew sales during the early years did so by increasing the customer base, and without generating further jobs.Analyzing growth by industry, only one significant result emerged: Entrepreneurs from smaller companies tended to set up in competition with their incubator firm, while those from larger firms tended to start firms with no apparent relationship to their previous employment.The major inference from this study is that growth would appear not to be a primary objective of the entrepreneur. Further research to test these results is clearly necessary. Should they be replicated elsewhere, however, future strategies to improve the job generation capabilities of new firms would be most fruitful if directed at building a solid foundation for all firms rather than trying the impossible task of “picking winners.” Such assistance can only be provided at the time that the resources necessary for the successful launch of the firm—premises, equipment, orders, employees, money—are being assembled. Since almost all of these firms are local in nature, strategies that devise specific schemes tailored to meet local needs and using local people are most appropriate. By contrast, the small number of high-growth firms should be easily identifiable in the community and assisted individually.     

Firm-level volatility and exports

This paper shows that the share of exports in the total sales of a firm has a positive and substantial impact on the volatility of its sales. Decomposing the volatility of sales of exporters between their domestic and export markets, I show using an identification strategy based on a firm-specific geographical instrument that firms with a larger export share have more volatile domestic sales and less volatile exports. These empirical patterns can be explained using a model in which firms face market-specific shocks and short-run convex costs of production. In such a framework, firms react to a shock in one market by adjusting their sales in the other market. I point to strong evidence that output variations on the domestic and export market are negatively correlated at the firm level. This result casts doubts on the standard hypothesis that firms face constant marginal costs and maximize profits on their different markets independently of each other. Furthermore, it points to the caveat that sales volatility on a particular market only gives limited information about the size of shocks on that market.     

Are Firms in Developing Countries in Spider Webs or Iron Cages? Geographic Traps and Firm Performance

We explore the question of whether a geographic context represents opportunity or threat using two competing theories — geography of opportunity and curse of geography — and multilevel techniques to analyze data from 366 firms in six African countries (and validated with 128 firms from 24 countries). We find that location (landlockedness and bad neighbors) relate negatively to both sales and net profit. Infrastructure, however, does not relate directly to firm performance at a significant level but interacts with one firm characteristic — multinationality — in relating to sales and net profit. Locational traps — landlockedness and bad neighbors — also interact with multinationality and CEO origin in relating to sales and net profit. We discuss the implications of these findings for research and practice. © 2015 Wiley Periodicals, Inc.     

Assessing the Determinants of High-Growth Manufacturing Firms in Italy

Few firms grow rapidly, but their contribution to employment growth is often impressive. The main purpose of this paper is to analyse both the external and internal factors that can affect the probability of being a high-growth firm (HGF) in Italy. We found that HGFs are, on average, young firms and are present in different industries, but the role of demand is important to understanding their performance at the sectoral level. Moreover, our findings show that financial constraints and profitability are not associated with the probability of being a HGF. HGFs, on average, are characterised by high productivity, but only when growth is measured in terms of sales. The most original results of this study concern the endogenous determinants of rapid growth, which have yet to be adequately examined in the literature. First, we found that the concentration of ownership is important for HGFs that experienced rapid growth in their sales. Second, the quality of human capital is a strong point for firms experiencing rapid employment growth.