Firm Characteristics as Determinants of Capital Structures in Australia

This study investigates capital structures of Australian firms in relation to firm characteristics. Using an unbalanced panel of 367 firms observed over a 15‐year period from 1992 to 2006, our panel data regression results show that debt–asset ratio is positively related to asset tangibility but inversely related to growth prospects and business risk measured by unlevered beta of equity. We also find that although levered firms are generally more profitable than unlevered firms, profitability decreases the debt ratio of levered firms. We do not find that firm size affects the capital structure of Australian firms. These results are consistent with the pecking order and the agency cost theories but contradict the trade‐off theory.     

Creative destruction and regional productivity growth: evidence from the Dutch manufacturing and services industries

Do firm entry and exit improve the competitiveness of regions? If so, is this a universal mechanism or is it contingent on the type of industry or region in which creative destruction takes place? This paper analyses the effect of firm entry and exit on the competitiveness of regions, as measured by total factor productivity (TFP) growth. Based on a study across 40 regions in the Netherlands over the period 1988–2002, we find that firm entry is related to productivity growth in services, but not in manufacturing. The positive impact found in services does not necessarily imply that new firms are more efficient than incumbent firms; high degrees of creative destruction may also improve the efficiency of incumbent firms. We also find that the impact of firm dynamics on regional productivity in services is higher in regions exhibiting diverse but related economic activities.     

Age and firm growth: evidence from three European countries

This article provides new insights into the dependence of firm growth on age along the entire distribution of growth rates, and conditional on survival. Using data from the European firms in a global economy survey, and adopting a quantile regression approach, we uncover evidence for a sample of French, Italian and Spanish manufacturing firms with more than ten employees in the period from 2001 to 2008. We find that: (1) young firms grow faster than old firms, especially in the highest growth quantiles; (2) young firms face the same probability of declining as their older counterparts; (3) results are robust to the inclusion of other firms’ characteristics such as labor productivity, capital intensity and the financial structure; (4) high growth is associated with younger chief executive officers and other attributes that capture the attitude of the firm toward growth and change. The effect of age on firm growth is rather similar across countries.     

Arriving at the high-growth firm

This study explores heterogeneity in how firms have achieved high growth. Using the population of all firms in Sweden with more than 20 employees in existence in 1996 (N=11,748), we analyzed their development for each year of the previous 10 years (1987 to 1996). From this population of all firms in Sweden, multiple criteria were used to define a sample of high-growth firms (n=1501). Using 19 different measures of firm growth (such as relative and absolute sales growth, relative and absolute employee growth, organic growth vs. acquisition growth, and the regularity and volatility of growth rates over the 10-year period), we identified seven different types of firm growth patterns. These patterns were related to firm age and size as well as industry affiliation. Implications for research and practice are offered.     

Corporate Social Responsibility That “Pays”: A Strategic Approach to CSR for SMEs

This study adopts a strategic approach to corporate social responsibility (CSR), puts forward a model of CSR activities that enhance small and medium enterprises (SMEs) growth, and argues that by aligning CSR activities with the competitive strategy of the firm, SMEs enhance firm growth. We test this model using multinomial logistic analysis and data from a survey with 211 U.K.‐based SMEs. We find that CSR activities related to the community enhance firm growth for all SMEs, but especially for firms adopting a cost leadership strategy, and that CSR activities related to the workforce are crucial to avoid sales decline, especially for SMEs adopting a differentiation or a quality‐driven strategy. We also find that environment‐related CSR activities are not beneficial for SMEs' growth and that human rights–related CSR activities slow growth for firms adopting a differentiation or a quality‐driven strategy. Finally, we put forward managerial and policy recommendations.     

Process innovations and firm productivity growth

This article analyses the effect of process innovations on firm total factor productivity growth, explicitly considering the impact of firm size on the nature of this relationship. In particular, we analyse whether firm size affects the life span of the impact of process innovations on productivity growth. The data are drawn from a Spanish survey of manufacturing firms over the period 1991–1998. We use a fully non-parametric methodology based on the concept of stochastic dominance. Our results show that the implementation of process innovations produces an extra productivity growth both for large and small firms. However, this productivity growth is more persistent for large than for small firms.     

Firm Size,Source of Finance,and Growth - Evidence from China

Using a comprehensive firm-level data set from China spanning the period 1998–2005, this study investigates the relationship between firm size, financing sources, and total factor productivity growth. Controlling for the endogeneity of financing sources, we find that firm size plays an important role in the way financial structure affects the growth process. Domestic bank loans are more effective for bigger firms, while self-raised finance is more beneficial to smaller firms’ growth. We also uncover evidence that ownership mediates the relationship between firm size, finance, and growth.     

Firm Heterogeneity,Origin of Ownership and Export Participation

This paper investigates the relationship between firm heterogeneity and a firm’s decision to export, using the annual survey of Thai manufacturing firms from 2001 to 2004. A significant contribution of this paper is that we are, for the first time, able to break down FDI by country of origin to observe whether the behaviour of MNEs differs by region of origin. We find that sunk entry costs and firm characteristics are important factors in explaining a firm’s decision to export. Another important determinant is the ownership structure of the firm, with foreign‐owned firms having a higher probability of exporting than domestically owned firms, although this differs across country of ownership with potentially important policy implications. Export platform FDI is used to explain the behaviour of foreign firms that invest in Thailand. Using three measures of total factor productivity, we also find that highly productive firms self‐select into the export market. The implication for governments of developing countries is the need to think carefully about how and to whom they target their inward FDI policies as a means of growth. The heterogeneous behaviour of multinationals from different nations means that policies targeting specific regions or countries may be preferable to general tax concessions or the implementation of special economic zones that are open to all.     

Export Premium,Self‐selection and Learning‐by‐Exporting: Evidence from Chinese Matched Firms

This study empirically focuses on examining the hypotheses of export premium (exporters are more productive than non‐exporters), selection‐into‐exporting (more productive firms are ones that tend to become exporters) and learning‐by‐exporting (new export market entrants have higher productivity growth than non‐exporters in the post‐entry period). The propensity score matching method is used to adjust for observable differences of firm characteristics between exporters and non‐exporters, allowing an adequate ‘like‐for‐like’ comparison. We also use the difference‐in‐difference matching estimator to capture the magnitude of different productivity growth between matched new export market entrants and non‐exporters in the post‐entry period up to two years. Drawing on 2,340 Chinese firms in the period 2000–02, we find evidence for export premium and self‐selection, and once the firm has entered the export market there is additional productivity growth from the learning effect, in particular in the second year after entry.     

Firm Growth and Liquidity Constraints: A Dynamic Analysis

Using a large unbalanced panel data set of Portuguese manufacturing firms surviving over the period from 1990 to 2001, the purpose of this paper is to examine whether liquidity constraints faced by business firms affect firm growth. We use a GMM-system to estimate a dynamic panel data model of firm growth that incorporates cash flow as a measure of liquidity constraints and persistence of growth. The model is estimated for all size classes, including micro firms. Our findings reveal that smaller and younger firms have higher growth-cash flow sensitivities than larger and more mature firms. This is consistent with the suggestion that financial constraints on firm growth may be relatively more severe for small and young firms. Nevertheless, the same finding can be interpreted in a different way if we consider the more recent literature which interpret the higher investment/cash flow sensitivity of younger and smaller firm in absence of financial market imperfection as the outcome of these firms reaction to the fact that realisation of their cash flows reveals them the direction to go in presence of uncertainty of their growth prospect. Besides, firms that were small and young at the beginning of the sample period exhibited more persistent growth than those that were large and old. Finally, these results have significant policy implications.      

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.     

Corporate Social Performance, Firm Valuation, and Industrial Difference: Evidence from Hong Kong

This study addresses two issues. First, does corporate social performance matter in Hong Kong. Second, if yes, is it relevant to some industries more than others. To answer these questions, we develop a corporate social performance index (CSP) to measure the quality of corporate social performance of major Hong Kong listed firms. The criteria are based on the OECD Principles of Corporate Governance. Using the 3-year period from 2002 to 2005, we find that firm valuation is positive and significantly associated with CSP. Interestingly, this relation matters less in China related firms and firms with a concentrated ownership structure. The results also show that CSP impacts firm valuation more positively when the firm is in the service sector. We further find that CSP is positively related to the market valuation of the subsequent year.     

Knowledge networking and growth in service firms

This paper empirically assesses whether knowledge networking affects the growth of small service firms. More specifically, using a large, unbalanced panel data set for the period 1992–2009, it investigates whether participation in a knowledge network called PLATO is positively related to service firm growth. The results show that knowledge networking has a highly significant positive effect on the net asset and added value growth of service firms. Furthermore, it is demonstrated that the positive effect of knowledge networking on firm growth is significantly larger for service firms than for manufacturing firms, indicating that industry drives networking success.     

Vertical Coopetition and the Sales Growth of Young and Small Firms

Vertical coopetition describes a situation where a firm has a vertical exchange relationship with a direct competitor. Drawing on resource‐based perspectives and resource dependence theory, we examine specific characteristics of vertical coopetition that affect the sales growth of young and small firms. We propose that the size of the competitor and mutual dependence as well as overdependence among the cooperating rivals affect the growth potential of young and small firms differently. Our research makes a contribution to the literature by disentangling some of the benefits and threats related to vertical coopetition for young and small firms.     

The Size and Growth of UK Manufacturing and Service Firms

This paper investigates the relationship between firm size and growth for UK manufacturing and services over the period 1991 to 1995. We test for size effects on growth, using models which incorporate the influences of previous growth and industry membership. The results from the analysis suggest that for both manufacturing and services, small firms tend to grow faster than larger firms. The growth of manufacturing firms appears to persist over time, whereas this is not the case for service firms. Small firms tend to have more variable growth rates than their larger counterparts in manufacturing and services. This suggests that large firms may enjoy advantages associated with diversified operations which make them less susceptible to periods of extremely high or low growth.     

Entrepreneurship and innovation in Ghana: enterprising Africa

This study adopts a multi-level theoretical framework to examine data from 496 entrepreneurs in Ghana. Seven types of innovation activity are analysed against three categories of variables: the characteristics of the entrepreneur, the internal competencies of the firm, and firm location. Across all respondents, the incidence of incremental innovation was far greater than novel innovation. The extent of innovation was related to the education level of the entrepreneur. Firm size and involvement in exporting were positively related to innovation, but firm growth is less systematically so. Innovation was greater in firms located in conurbations compared to firms located in large and small towns. We conclude with suggestions for policy to promote entrepreneurship and innovation in Ghana.      

The effect of firm formation and growth on job creation in the United States

This paper demonstrates the importance of new firm formation to economic growth. It begins by providing data that describe the United States as having had greater employment growth than most developed nations of the world over the last 25 years, and focuses upon why job growth in the United States has exceeded that of other nations.Job Creation by Firm Size. We first examine the data on the relative contribution of small and large firms to U.S. job growth. By summarizing research that is uniformly expressed in two-year periods and defines small firms as those with less than 100 employees, conclusive evidence emerges that small firms are the major sources of net new creation.Firm Entry/Exit Rates and Economic Growth. Further understanding of small firm job creation is obtained when we examine firm entry and exit data. Here we find that firm entry rates vary considerably from period to period (range: 10.4%–12.5%), whereas exit rates remain relatively stable from period to period (range: 9.6%–10.4%). Thus, variation in entrepreneurial activity—the formation of new firms—is the major cause of net increases in the number firms. In both the United States and the United Kingdom, net firm increases are positively related to overall economic activity.Firm Entry/Exit and Job Creation. Further exploration of this correlation can be conducted by examining job creation and loss defined by source: entries, expansions, exits, and contractions. The data for 1976 through 1984 shown here demonstrate that new entries account for 74.0% of the 50.8 million new jobs created. Expansions of existing firms accounted for 26.0%. Small firms (less than 500 employees) produced 54.6% of the entry jobs and 56.8% of the expansion jobs.On the other hand, job losses totaled 33.8 million, 79.0% due to exits and 21.0% to contractions. Small firms account for 53.6% of the jobs lost from exits and 47.8% of those lost from contractions. Overall, small firms account for 60.5% of the 17.0 million net new jobs.Given the data that show correlation between net firm formation rates and economic growth, the finding that entry rates vary more than exit rates, and the finding that new entries create most of the new jobs, it can be concluded that firm formation—especially small firm formation—is a significant factor in economic growth. Increases in small firm formation rates have a significant effect on net job creation.Schumpeter's Model and Observed Market Turbulance. Another finding from this data on job creation by entry, expansion, exit, and contraction is the large amount of job creation and destruction activity taking place. For the period studied, three jobs were created and two jobs destroyed for each net new job created. This describes a turbulent job market with many workers moving from job to job. The labor markets are much less stable that normally envisioned.This observed phenomenon fits well with Schumpeter's theory of capitalism; he proposes that capitalistic growth occurs because entrepreneurs use innovations to form new firms which enter existing markets. When successful, these growing new firms destroy existing market structures, causing decline of established firms while creating increased demand and producing overall economic growth. If Schumpeter is correct, one would expect to find high rates of firm formation and failure, and large numbers of jobs created by new firms, while many jobs are lost by exits and contractions of established firms. The findings reported here show this.Government Policy Affects on Entry/Exit. Our results also show that formation of small, new firms is a necessary requirement for economic growth. Historically, however, Government policy has not considered small firm entry as a central issue. Thus, government policies can and have had a negative effect on entry rates and therefore upon economic growth rates.Furthermore, high rates of new firm formation cause a great deal of turbulence in labor markets, with three jobs created and two lost for every one net new job. Such labor turbulence may be seen by policy makers as undesirable as it entails considerable worker movement from job to job. As such, policy makers have recently proposed policies to protect workers from job loss due to contractions and exits. However, such protection policies, as demonstrated in recent European experience, will also construct barriers to entrepreneurial entry. The result may be a decline in small firm entry and a decline in economic growth.Instead of protecting specific jobs, appropriate policies are those that facilitate movement of workers from job to job. Adequate unemployment compensation for short term unemployment, fully vested and portable pension plans, and retraining programs are examples of policies that allow the labor market to remain flexible while reducing the negative effect on those who lose jobs.     

Job Creation by Company Size Class: The Magnitude,Concentration and Persistence of Job Gains and Losses in Canada

The statistical observation that small firms have created the majority of new jobs during the 1980s has had a tremendous influence on public policy. Governments have looked to the small firm sector for employment growth, and have promoted policies to augment this expansion. However, recent research in the U.S. suggests that net job creation in the manufacturing small firm sector may have been overestimated, relative to that in large firms.The first part of this paper addresses various measurement issues raised in the recent research, reassess the issue of job creation by firm size, and pushes this work beyond the manufacturing sector by employing longitudinal data covering all companies in the Canadian economy. We conclude that over the 1978–92 period, as a group small firms did account for a disproportionate share of both gross job gains and losses, and net employment increases, no matter which method of sizing firms is used. Measurement does matter, however, as the magnitude of the difference in the growth rates between small and large firms is very sensitive to the measurement approaches used. Part one of the paper also produces results for various industrial sectors, and examines employment growth in existing small and large firms (i.e., excluding births). It is found that employment growth in the population of existing small and large firms is very similar. Attempts are made to introduce a job quality aspect to the analysis by using payroll rather than employment data. Payroll data allow any relative change in hours worked or wages paid in small (relative to large) companies to be incorporated in the findings. This did not significantly alter the conclusions reached using employment data only.The second part of the paper looks at concentration and persistence of employment creation and destruction within size classes. If growth is highly concentrated, knowing that a firm is small will provide little information about its prospects for growth. Most small firms would grow relatively little, or decline, while a few expanded a lot. It is found that both job creation and destruction is highly concentrated among relatively few firms in all size groups. There are fast growing firms in all size classes, and although most job creation is found in the small firm sector, the fastest growing large firms out-perform the majority of small firms in any given period. Finally, the employment creation performance of businesses are compared over two three-year periods. It is found that knowing that a firm is a high performer (in terms of jobs created) over one period is of only limited value in determining growth in the second period. This is particularly true among small firms. These results suggest that firms which expand rapidly during one period are replaced to some considerable degree by others in the subsequent period.     

CEO's Total Wealth Characteristics and Implications on Firm Risk

We study the connections between firm risk and the CEO's personal wealth characteristics, using a unique dataset on CEO wealth and its components. Consistent with decreasing absolute risk aversion, we find that wealthier CEOs are associated with higher risk firms. Riskier firms tend to have CEOs whose wealth is more independent of the firm. We also find that CEOs with high personal portfolio betas run firms with higher betas. CEO's tenure is negatively associated with firm risk measured either as beta, idiosynchratic risk, or volatility of accounting profitability. A possible interpretation is that risk‐averse managers are better able to imprint their risk preferences on the firm over time. Stronger corporate governance weakens the connection between CEO wealth characteristics and firm risk.     

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.