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.     

Forecasting European high-growth Firms - A Random Forest Approach

High-growth firms (HGFs) have aroused considerable interest both by researchers and policymakers mainly because of their substantial contribution to job creation and to the advancement of the surrounding economy (Acs et al., Small Bus Res Summ (328):1–92 2008, Schreyer 2000). Any initiative to foster HGFs requires the ability to reliably anticipate them. There seems to be a consensus in previous mainly regression-based studies on the impossibility of such a prediction (Coad, Doc Trav Centre d’Econ Sorbonne 24:1–72 2007b). Using a novel random forest (RF) based approach and a recent data set (2004–2014) covering 179970 unique firms from nine European countries, we show the potential of a true out-of-sample prediction: depending on the country, we were able to determine up to 39% of all HGFs by selecting only ten percent of all firms. The RF algorithm is both used to determine relevant predictors and for the actual prediction and pattern analysis. Both the selection of the best RF and the cross-country comparisons are based on a Receiver Operating Characteristic analysis. We find that most accurate HGF predictions are possible in GB, France, and Italy and largely confirm this ranking using Venkatraman’s unpaired test. Apart from the firm’s size, age, and past growth, the sales per employee, the fixed assets ratio, and the debt ratio are quite important. Our “typical” HGFs determined using RF prototypes have been older and bigger than the remaining firms, which is counterintuitive and atypical in literature. Based on our finding, typical HGFs are not start-ups, which questions current political funding strategies. Apart from that, our results do not support and rather refute the existence of a survivorship bias. Moreover, approximately every fourth HGF remains to be a HGF in the next period.     

High-growth firms and innovation: an empirical analysis for Spanish firms

This paper analyses the effect of R&D investment on firm growth. We use an extensive sample of Spanish manufacturing and service firms. The database comprises diverse waves of Spanish Community Innovation Survey and covers the period 2004–2008. First, a probit model corrected for sample selection analyses the role of innovation on the probability of being a high-growth firm (HGF). Second, a quantile regression technique is applied to explore the determinants of firm growth. Our database shows that a small number of firms experience fast growth rates in terms of sales or employees. Our results reveal that R&D investments positively affect the probability of becoming a HGF. However, differences appear between manufacturing and service firms. Finally, when we study the impact of R&D investment on firm growth, quantile estimations show that internal R&D presents a significant positive impact for the upper quantiles, while external R&D shows a significant positive impact up to the median.     

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.     

Who creates jobs in developing countries?

This paper investigates the contribution of small firms to employment, job creation, and growth in developing countries. While small firms (<20 employees) have the smallest share of aggregate employment, the small and medium enterprise sector’s (<100 employees) contribution is comparable to that of large firms. Small firms have the largest shares of job creation, and highest sales growth and employment growth, even after controlling for firm age. Large firms, however, have higher productivity growth. Conditional on size, young firms are the fastest growing and large mature firms have the largest employment shares but small young firms have higher job creation rates.     

Gazelles as job creators: a survey and interpretation of the evidence

It is often claimed that small and young firms account for a disproportionately large share of net employment growth. We conduct a meta-analysis of the empirical evidence regarding whether net employment growth rather is generated by a few rapidly growing firms—so-called Gazelles—that are not necessarily small and young. Gazelles are found to be outstanding job creators. They create all or a large share of new net jobs. On average, Gazelles are younger and smaller than other firms, but it is young age more than small size that is associated with rapid growth. Gazelles exist in all industries. They seem not to be overrepresented in high-technology industries, but there is some evidence that they are overrepresented in services.     

Employment Creation in Small Technological and Design Innovators in the U.K. during the 1980s

This paper provides rare empirical evidence on employment creation by innovative small firms in the U.K. over the eleven years between 1980 and 1991. Drawing on a database of firms which were recognised as having introduced important innovations, the paper examines the extent of employment growth in these companies and compares their growth with that discovered by other studies of small firms in the U.K. This shows that the innovative firms have grown at a significantly faster average rate than small firms generally. Some of the factors associated with employment change in small firms are assessed. This shows that the initial size, age, sector of activity and type of innovation introduced by the firms were all associated with differences in their average rate of growth. The employment created was, however, highly concentrated in a few firms, but even the fastest growing of these companies (directly) created hundreds rather than thousands of new jobs over the period of analysis.     

Technical performance and firm size: Analysis of patents and publications of U.S. firms

This study focuses on the scientific output of firms of different sizes in different industries in the U.S. Both patents, and papers and publications are used as measures of technical output. Data from two samples of firms, one consisting of 225 large firms (annual sales at least $250 million and minimum annual R&D budget of $1 million) and the other consisting of 248 small and medium sized firms (annual sales between $10 to $200 million and annual R&D budget at least $10 thousand) have been presented here. The study shows that determinants of R&D expenditure are different in firms of different sizes. For the large firms, R&D expenditure depends on net income as well as its size, measured in terms of annual sales. For small size firms, R&D expenditure is closely related with sales, rather than the net income. For large firms, R&D expenditure is related to both sales and income, the latter being more important than the former. The two output measures, patents and papers are correlated, but the correlation is not a very strong one for small firms. Patent and papers are correlated significantly with both R&D expenditure as well as annual sales. The firm's growth is not linked with patents. On the contrary, there is a negative relationship between patent and R&D growth and patent and income growth in the case of small firms. Papers are not linked with growth variables for small firms. Finally, this study confirms the hypothesis that small firms are more productive in innovation than the large firms. Small firms are more efficient than their larger competitors in terms of patents and papers per million dollars of R&D expenditure.     

Firm Growth and Supply Chain Partnerships: An Empirical Analysis of U.K. SME Subcontractors

This paper examines the performance of a sample of 211 U.K.subcontractors to evaluate whether differences in how they manage their supply chain relationships are associated with differences in (sales and employment)growth rates over two consecutive 3 year periods from 1993 to 1999.We identified 34 firms that had close partnership relationships with members of their supply chain. Our empirical findings indicate that firms with inter-firm partnership arrangements with members of their supply chain experienced significantly higher growth rates. These results suggest that inter-firm partnerships may facilitate more rapid and sustained SME growth,though further research is required to determine the role played by partnerships and the extent to which this may vary to reflect differing owner-manager motivations and growth opportunities.     

Evaluation of credit guarantee policy using propensity score matching

In this article, we evaluate the effect of the credit guarantee policy by comparing a large sample of guaranteed firms and matched non-guaranteed firms from 2000 to 2003. The sample firms are compared with respect to growth rates of different performance indicators including: productivity, sales, employment, investment, R&D, wage level, and the survival of firms in the post crisis period. In order to avoid the selectivity problem, propensity score matching methodologies are adopted. Results suggest that credit guarantees influenced significantly firms’ ability to maintain their size, and increase their survival rate, but not to increase their R&D and investment and hence, their growth in productivity. Moreover, due to the adverse selection problem, firms with lower productivity were receiving guarantees.     

The Survival and Growth of New Establishments in Sweden, 1987-1995

The aim of the study is to examine the survival of new establishments and to identify factors affecting their survival probability and their employment growth.This study uses a unique data set on all new establishments that were created in Sweden 1987 and 1988, with the exception of the construction industry. The results show among others that:(i) new establishments face a high risk of closing down, (ii) the probability of establishment survival increases with the age and size of the establishment,(iii) variables that are assumed to measure access to resources (being a part of a multi-unit firm,and being new due to merger or dispersal) have a positive effect on survival, (iv) the number of employees at the start- up year has a negative effect on the employment growth, and (v) demographic and educational factors are important in explaining survival and growth.     

Survival and Growth Patterns among New Technology‐Based Firms: Empirical Study of Cohort 2006 in Sweden

This study investigates the survival and growth trends in a cohort of new technology‐based firms (NTBFs) established in Sweden in 2006. This cohort has faced both an economic upswing and a severe downturn, which started in 2008, and by 2014 provides 8 years of historical records. Our study makes several contributions to the current understanding of NTBF survival and growth. First, our empirical observations show that many NTBFs (72 percent) from the 2006 cohort were still operating at the end of 2014, indicating a much higher survival rate than those found in previous studies. Second, surviving firms from the 2006 cohort positively affected employment, as their annual job creation was higher than the reduction in employment caused by exiting firms. Third, very few companies experienced high‐growth during their first 7 years, and employment growth and sales growth were highly correlated among high‐growth firms.     

Born globals – presence,performance and prospects

The concept born global firms has gained a spectacular increase in interest from both academic and political circles. Rigorous quantitative treatment of born global firms are however rare in the international business/economics literature. Implementing unique data on all Swedish start-ups during 1998–2008 in the manufacturing sector, we conclude that born global firms are a very rare event, that their prevalence seems invariant to time, and that they perform similar to other matched “twin” firms with regard to profitability and productivity but report a considerably higher growth in employment and sales. These results are robust to a wider definition of born global firms and to the timing of performance measurements.     

Creating good public policy to support high-growth firms

Writing in Small Business Economics Scott Shane argues that policy-makers should stop subsidising start-ups and instead focus on supporting the small subset of new businesses with high growth potential. However, both Shane and other scholars who have made the same argument only offer broad-brush proposals to achieve this objective. The aim of this article, in contrast, is to engage in a detailed discussion of how to create appropriate policies for high-growth firms (HGFs). Drawing on research in Scotland, we argue that policy-makers are looking for HGFs in the wrong places. The heterogeneous nature of HGFs in terms of sector, age, size and origins makes in impractical to target support on particular sectors, technologies or types of firms (e.g., new or R&D intensive). The article proposes a reorientation of HGFs, both in terms of appropriate targeting and forms of support. Public policy also needs to focus on the retention of HGFs which are acquired by non-local businesses. Finally, policy-makers need to properly reflect upon the specificities of their entrepreneurial environment when devising appropriate policy interventions.     

Industry changes in technology and complementary assets and the creation of high-growth firms

This study uses employment data to examine why some industries host more new high-growth firms than others. Using a unique data base of 201 industries over a 15-year period, we find that increases in the proportion of employment of scientists and engineers in industries are positively associated with counts of fast-growing new firms; however, we do not detect a relationship between fluctuations in the proportion of employment in sales and production occupations and counts of fast-growing new firms. The findings suggest that technological innovation is an important determinant of entrepreneurial opportunity. Further, they suggest that private new firms are an important means of organizing commercial innovation and that new firms may be less constrained by complementary assets than has been previously understood.     

Age or size? Contributions to job creation

Small firms have been identified as drivers of job creation, although the evidence on their contribution to net employment growth has been disputed. This article shows that job turnover and firm growth vary systematically across firm size groups and that smaller firms do indeed make an important contribution to new job creation. There is a significant caveat, however; we find that it is not firm size per se that is driving these results but rather firm age. We show that younger firms are consistently more dynamic than older firms. We also find a strong inverse relationship between employment growth and size for young firms, but this declines very markedly for older age groups. This provides some support for the Gibrat’s law prediction that size and growth are independent, but only once the firm has moved beyond the start-up stage.     

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.     

Assessing the effects of corruption and crime on firm performance: evidence from Latin America

This paper uses a survey of private firms to assess the effects of corruption on the economic prospects of firms. The paper studies whether corruption and crime affect sales, investment and employment growth at the firm level, and whether bribes and illegal payments by firms reduce bureaucratic interference. The paper finds that corruption and crime substantially reduce sales growth and that the reported levels of corruption and bureaucratic interferences are positively correlated at the firm level. Overall, the results of the paper suggest that corruption and crime substantially reduce firm competitiveness and that corruption is unlikely to have any positive effects.     

Were Small Producers the Engines of Growth in the Canadian Manufacturing Sector in the 1980s?

Small firms are often seen to be the engines of growth. There are two main sources of empirical evidence that are adduced to support this conclusion. The first is that job creation has been coming mainly from small firms. The second is that the share of employment accounted for by small firms has increased in the past two decades. Both of these sources rely on a simple metric-employment. This paper asks whether changes in this metric affect the view of the role that small firms play in the growth process.The first section of the paper maintains employment as the measure that is used to evaluate the importance of small firms but modifies the raw measure of employment to correct for the fact that small firms pay lower wages than large firms. When this is done, small producers are no longer found to outperform large producers in terms of job creation over the 1970s and 1980s in the Canadian manufacturing sector.The second section of the paper changes the metric used to evaluate relative performance by moving from employment to output and labour productivity. The paper demonstrates that while small producers have increased their employment share dramatically, they have barely changed their output share. Small firms have been falling behind large firms both with respect to wages paid and labour productivity.