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.     

The ambitious entrepreneur: High growth strategies of women-owned enterprises

During the last two decades, researchers have sought to develop categories of entrepreneurs and their businesses along a variety of dimensions to better comprehend and analyze the entrepreneurial growth process. Some of this research has focused on differences related to industrial sectors, firm size, the geographical region in which a business is located, the use of high-technology or low-technology, and the life-cycle stage of the firm (i.e., start-up vs. more mature, formalized companies). Researchers have also considered ways in which entrepreneurs can be differentiated from small business managers. One of these classifications is based on the entrepreneur's desire to grow the business rapidly. This is the focus of our study.To date, the media have paid considerable attention to rapidly growing new ventures. However, still lacking are large-scale research studies guided by theory through which we can expand our knowledge of the underlying factors supporting ambitious expansion plans. Some research has identified factors that enhance or reduce the willingness of the entrepreneur to grow the business. Factors include the strategic origin of the business (i.e., the methods and paths through which the firm was founded); previous experience of the founder/owner; and the ability of the entrepreneur to set realistic, measurable goals and to manage conflict effectively.Our study attempted to identify the strategic paths chosen by entrepreneurs and the relation of those paths to the growth orientation of the firm. The entrepreneurs sampled in this study are women entrepreneurs across a wide range of industrial sectors. Recent reviews of entrepreneurship research have suggested the need for more studies comparing high-growth firms with slower-growth firms to better delineate their differences in strategic choices and behaviors.Our study sought to answer the following questions: What characterizes a “high growth-oriented entrepreneur?” Is this distinction associated with specific strategic intentions, prior experience, equity held in previous firms, the type of company structure in place, or success factors the entrepreneur perceives are important to the business? Do “high growth” entrepreneurs show greater entrepreneurial “intensity” (i.e., commitment to the firm's success)? Are they willing to “pay the price” for their own and their firm's success? (i.e., the “opportunity costs” associated with business success and growth). Other relationships under investigation included different patterns of financing the business' start-up and early growth. Do “high-growth” entrepreneurs use unique sources of funding compared with “lower-growth” entrepreneurs?Eight hundred thirty-two entrepreneurs responded to a survey in which they were asked to describe their growth intentions along nineteen strategic dimensions, as well as respond to the foregoing questions. Some of the strategic activity measures included adding a new product or service, expanding operations, selling to a new market, and applying for a loan to expand operations. Actual growth rates based on sales revenues were calculated, and average annualized growth rates of the industrial sectors represented in the sample were obtained. This study showed that high-growth-oriented entrepreneurs were clearly different from low-growth-oriented entrepreneurs along several dimensions. The former were much more likely to select strategies for their firms that permitted greater focus on market expansion and new technologies, to exhibit greater intensity towards business ownership (“my business is the most important activity in my life”), and to be willing to incur greater opportunity costs for the success of their firms (“I would rather own my own business than earn a higher salary while employed by someone else”).The high-growth–oriented entrepreneurs tended to have a more structured approach to organizing their businesses, which suggests a more disciplined perception of managing the firm. In summary, results showed the group of high-growth–oriented entrepreneurs, labeled “ambitious,” as having the following distinctions: strategic intentions that emphasize market growth and technological change, stronger commitment to the success of the business, greater willingness to sacrifice on behalf of the business, earlier planning for the growth of the business, utilization of a team-based form of organization design, concern for reputation and quality, adequate capitalization, strong leadership, and utilization of a wider range of financing sources for the expansion of the venture. The purpose in uncovering these differences is to enable entrepreneurs and researchers to identify more clearly the attributes of rapid-growth ventures and their founders and to move closer to a field-based model of the entrepreneurial growth process which will help delineate the alternative paths to venture growth and organizational change.     

Globalisation and Obesity

The WHO has recently announced the global obesity epidemic. An economic model is developed in which globalisation factors generate health externalities and contribute to global obesity growth. The unbalanced panel data set contains the information for 79 countries over the period 1986–2008. Fixed‐effects panel data estimation and quantile regression analysis were used to analyse the data. The fixed‐effects panel model results indicate that the impact of trade openness and the globalisation social index (GSI) on global obesity rates is positive and significant, which is consistent with prior expectations, while surprisingly the foreign direct investments (FDI) has no impact on global obesity. While these results are interesting, they are hiding the effect of globalisation processes across the conditional distribution of the obesity variable. The use of quantile regression uncovered that the impact of the FDI and the GSI on low and average quantiles (low and average obesity rates in our sample) is positive and significant, while high quantiles are not affected. Since low and average quantiles (low and average obesity rates) are representative of the less‐ and medium‐developed countries, this result implies that social globalisation and FDI adversely impact obesity in less‐to‐medium developed countries. Trade openness generally has no impact on changes in obesity rates across quantiles.     

Can Firms Grow Without Credit? A Quantile Panel Analysis in the Euro Area

This paper explores the effects of changes in bank credit on firm growth before and after the recent global financial crisis, taking into account firm-specific and country-specific characteristics as well as structural characteristics of domestic banking sectors. Panel quantile analysis is used on a sample of 2075 euro area firms in 2005–2011, enabling thus the identification of potential differences in the dynamics between high-growth and low-growth firms. The post-2008 credit crunch is found to seriously affect mostly high-leveraged, low-growth firms operating in concentrated banking systems with weak foreign presence, and in riskier and less financially developed European economies. By contrast, high-growth firms are not affected and, thus, may be expected to facilitate and sustain the post-crisis credit-less recovery in the euro area. A policy implication of our findings is that creating the right conditions for the emergence of innovative high-growth firms may be a more effective growth strategy, especially in adverse times, as compared to a general policy covering all types of firms.     

What does (not) characterize persistent corporate high-growth?

Theoretical and empirical studies of firm–industry dynamics have extensively focused on the process of growth. Theory predicts innovation, efficiency, profitability and financial status as the central channels through which firms can possibly achieve outstanding growth performance. The question is whether such high-growth performance is sustained over time and, if so, what are the factors enabling persistent high-growth patterns. Exploiting panels of Italian, Spanish, French and UK firms, we relate high growth, persistent high growth and other growth patterns to measures of efficiency, innovativeness, profitability and financial conditions. We find that high-growth firms are characterized by higher productivity and leverage, and that persistent high-growth firms do not systematically differ from other high-growth firms in none of the considered economic and financial dimensions. The findings are robust across countries, manufacturing and services.     

Stock option taxation: a missing piece in European innovation policy?

Europe continues to lag behind the USA in venture capital (VC) activity and in the creation of successful startups, and has recently been surpassed by China. This is despite the fact that many European countries have deep financial markets, strong legal institutions, and high R&D spending. We point to the tax treatment of employee stock options as an explanation for the stronger growth of the US VC sector. As a response to high uncertainty and transaction costs, VC financiers have developed a model in which founders and key recruitments are compensated with stock options under complex contracts. Low tax rates on employee stock options further raise the relative returns of working and investing in innovative entrepreneurial firms, and shift financial capital and talent to that sector. We measure the effective tax on stock options in VC-backed entrepreneurial firms in a number of developed economies. Countries with lower stock option taxation have higher VC activity and more high-growth expectation entrepreneurial activity. Based on these associations and the theoretical and empirical literature, we argue that more lenient taxation of gains on employee stock options can be a strategy for European countries to catch up in entrepreneurial finance. This tax policy would narrowly target entrepreneurial startups without requiring broad tax cuts. The favorable tax treatment of stock options allows the state to promote firms that rely on entrepreneurial finance and make use of these types of contracts without lowering taxes for other sectors of the economy.     

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.     

What holds back high-growth firms? Evidence from UK SMEs

High-growth firms are seen as vital for economic growth. It is important for policy and theory to consider the barriers faced by firms achieving high growth and those with the potential to do so. This article uses data for 4,858 UK SMEs to investigate the obstacles perceived by two sets of firms: (1) firms in periods of high growth and (2) potential high-growth firms, which are observationally similar but are not achieving high growth. The results suggest high-growth firms perceive problems in six areas: recruitment, skill shortages, obtaining finance, cash flow, management skills and finding suitable premises. Potential high-growth firms feel held back by the economy, obtaining finance, cash flow and their management skills, but are less likely to perceive regulation is a problem. The results have implications for theory on high-growth firms and policies focussed at them.     

Reconciling quantile autoregressions of firm size and variance–size scaling

The aim of this paper is to understand what economic mechanisms may cause the Law of Proportionate Effect to break down for fast-growing and shrinking firms. Recent evidence has highlighted that the first-order coefficients of quantile auto-regression of firm size decline across quantiles. Our theoretical results show that negative variance–size scaling is sufficient to yield a decline in quantile auto-regression coefficients if firm log-size is Laplace-distributed, conditional on size one period ahead. However, it is sufficient only for declining auto-regression coefficients for fast-growing firms under Asymmetric Laplace conditional log-size if skewness is decreasing with size. In other words, if the growth of large firms is less dispersed and more left-skewed, size is a disadvantage for the growth of fast-growers, but not necessarily an advantage for fast-decliners. Thus, size-related determinants of negative growth skewness, such as diseconomies of growth, market power, and managerial attention issues, impact on how the LPE is violated. Using data on Dutch manufacturing companies from the Business Register of Enterprises observed between 1994 and 2004, our empirical estimates of quantile regression models confirm the evidence of declining quantile regression coefficients for small–medium firms (20–199 employees) mainly in the right-most quantiles, and for the same subsample, we find that growth rates variance and skewness are decreasing with size. The theoretical propositions of the paper are thus corroborated.     

Can corporate financing through the stock market create systemic risk? Evidence from the BRVM securities market

This paper investigates the systemic risk in the West African Economic and Monetary Union (WAEMU) stock exchange (Bourse Régionale des Valeurs Mobilières - BRVM). It examines the extent to which growing activities in this stock market generate systemic risk. We find strong linkages across all economic sectors of listed firms, with the financial and industrial sectors being the center of the system around which the other sectors revolve. Financial institutions are not the only source of systemic risk in the WAEMU region, even though they play an important role in the system. Finally, using panel regressions, we find that big, high-growth and profitable firms contribute more to systemic risk than others. Overall, we find that the determinants of systemic risk depend on the indicator used to assess it and the sectors in which companies operate.     

Supply Chains,Global Financial Shocks and Firm Behaviour towards Liquidity Needs

Driven by the increasingly important role of supply chains in global production, this paper studies empirical association between global credit‐market shocks and firm behaviour towards liquidity needs across countries and industries. Focusing on the adjustment of working‐capital financing, we find two pieces of supporting evidence from international firm‐level panel data covering the period 2002:I–2012:IV. First, for industries where specific investment in the input supplier–customer relationship is large, firms are more exposed to credit‐market shocks. We find that measures of global credit‐market shocks are negatively associated with trade receivables, trade payables and inventories, conditional on the level of contract intensity in the industries where firms operate. Second, firms in emerging markets are more vulnerable to credit‐market shocks than are firms in developed countries. We are also able to verify the economic significance of sales growth, operating cash flows, cash stock and firm size in the overall adjustment. Our findings highlight the importance of balance‐sheet contagion along supply chains during the 2007–09 global financial crisis.     

The role of business subsidies in job creation of start-ups, gazelles and incumbents

This study contributes to the empirical literature concerning the role of business subsidies in job creation. Our empirical analysis, using an extensive firm-level data, suggests that the impact of business subsidies on employment growth differs more between high-growth start-ups and other firms than between start-ups and incumbents. On average, all subsidies relate positively to the contemporary employment growth for both start-ups and incumbents. Furthermore, after subsidy reception, the employment of both start-ups and older incumbents receiving employment or other subsidies grows more than that of non-subsidized firms. However, we find that business subsidies do not provide a significant additional boost to either contemporary or after-subsidy growth for young high-growth companies. There are apparently some other factors that promote growth in young high-growth firms; these factors help foster strong growth in many cases with or without subsidies.     

What Explains Cross‐country Industry Growth Patterns? Trade,Development and the Equity Financing Channel

We test theories that examine how economic and financial development affect cross‐country industry growth patterns. Finance theory suggests that financial development affects growth by lowering the cost of external finance. This has the implication that industries in more finance‐hungry sectors will grow faster in countries where financial markets are more developed. In addition, if financing constraints are lessened when stock market performance is high, firms in sectors more dependent on external finance should grow more rapidly following periods of good stock market performance. Trade and development theories, on the other hand, imply that a country's product‐mix and the pattern of industrial growth reflect which stage of development it is in and its factor endowments. Thus, one implication of trade/development theories is that countries that are close to each other in terms of GDP per capita should have similar patterns of industrial growth. Our tests find support for each of these theories.     

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.     

Unpacking Open Innovation: Absorptive Capacity,Exploratory and Exploitative Openness,and the Growth of Entrepreneurial Biopharmaceutical Firms

In this article, we explore the relationship between two key aspects of open innovation in small firms—absorptive capacity (ACAP) and external relationships—and their effects on growth in the U.S. and European biopharmaceutical sectors. Results from an international sample of 349 biopharmaceutical firms surveyed in the United States, United Kingdom, France, and Germany suggest that realized ACAP plays an important role in determining firms’ growth. In terms of the interaction between firms’ ACAP and external relationships, we find that engagement with exploratory relationships depends strongly on the continuity of R&D, while participation in exploitative relationships is more conditional on firms’ realized ACAP.     

Corporate governance,bank concentration and economic growth

We examine the effects of bank concentration and corporate governance among firms in terms of economic growth using panel data for 34 countries and 29 manufacturing sectors over the period 1980–2010. We show the following results: First, bank concentration exerts a negative effect on growth for industries that are most dependent on external financing. However, for countries with a high level of corporate governance bank concentration is less harmful to economic growth. Our results have important policy implications for emerging markets. Most importantly, they suggest that high corporate governance is a crucial means for promoting growth and prosperity in developing and emerging economies, in which we commonly observe under-developed financial sectors and high levels of bank concentration.     

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.     

Do innovation spillovers impact employment and skill upgrading?

So far, the research on impact of innovation on employment and skills focused on effects within firms and sectors. Little attention was paid to the influence of interlinkages between sectors as a source of employment change. The main contribution of this paper to the field refers to broadening the analysis of innovation impacts to innovation spillovers from vertically linked sectors on firms' employment and skill change in user industries. The empirical analysis conclusively demonstrates an important role of innovation spillovers in the economy. Firms' employment growth is shown to benefit significantly from spillovers of product innovations in manufacturing and knowledge-intensive services. Similarly, firms that are subject to increased spillovers of product innovations as well as marketing and organisational innovations are more likely to upgrade their skill composition. Conversely, employment growth and skill composition of firms seem to be negatively affected by spillovers of process innovations in vertically linked sectors.     

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.