Firm growth and innovation

In recent years, there has been an increase in empirical and theoretical work that addresses the role of innovation as one of the main sources of firm growth. The purpose of this special issue is to strengthen the role played by innovation as a determinant of firm growth. Despite the emergence of a vast empirical literature on whether innovative firms grow more quickly in terms of sales and employees, a number of crucial questions and answers remain. While a large number of applied papers observe a positive link between innovation and firm growth, the complexity of R&D activities, together with the diversity of innovation strategies and the multiplicity of growth modes, requires a multidimensional approach to examine the contribution of innovations on firm growth. To shed light on the link between firm’ growth and innovation sources, we organized a meeting of leading scholars of firm’ growth and innovation. The papers of this special issue were presented at the workshop on ‘Firm growth and innovation’ held on 28 and 29 June, 2012, in Tarragona, Spain. The papers that compose this special issue deal in depth with innovation activity, firm growth and the interaction between firm growth and innovation.     

Firm size and job creation in Germany

This paper reports new results on the role of firms from various size classes in the job generation process in Germany. It is based on a unique longitudinal data set covering all manufacturing establishments that existed in at least one year between 1978 and 1993 in the German federal state Lower Saxony. We find that gross job creation and destruction rates tend to decline with firm size, while net job creation rates and firm size are not systematically related when firms are classified according to their average number of employees in the base and end year. Small firms create (destroy) quite a large share of all new (lost) jobs.     

Firm size and productivity from occupational choices

Small Business Economics - We model the distributions of firm sizes and of firms’ total factor productivity (TFP) as outcomes of a market equilibrium from the occupational decisions of...     

Firm size effects on transaction costs

Associated with effects of scale, scope, experience and learning there are effects of firm size on transaction costs; in the stages of contact, contract and control. These effects are due to threshold costs in setting up contacts, contracts and governance schemes, and to differences with respect to the factors that cause transaction costs: bounded rationality, opportunism, uncertainty and transaction specificity of assets. Implications are considered for firm strategy and public policy.     

Firm size and the adoption of flexible automation

Data on the diffusion of flexible automation systems in the Italian metalworking industry are used to point out the role of size for the adoption of complex, systemic innovations. Plant and firm sizes turn out to be positively correlated to adoption rates. Moreover, adoption is more likely, ceteris paribus, in plants which are part of large industrial groups. This pattern applies in general, and is particularly remarkable for more advanced solutions. In this light, guidelines for industrial policies that focus on financial support, the diffusion of industrial standards, and the correction of asymmetries in the availability of know-how and skills are proposed.Financial support for this paper was provided by the Ministero della Pubblica Istruzione (MPI 40% research funds). Grants from the Fondazione Mauro and the CNR research project Tecnologie Meccaniche are also acknowledged. The research took advantage of the FLAUTO database, set up at the Laboratorio di Economia dei Processi di Automazione, MIP-Politecnico di Milano.     

Firm size and employment determination in dutch manufacturing industries

This paper examines whether the determination of employment differs between large and small firms. An employment equation is estimated on panel data of 67 (35) three-digit industries in Dutch manufacturing (1974–1986). The conclusions are as follows. Firstly, employment adjustment appears to be faster in small firms than in large ones. Secondly, the elasticity of factor substitution and the real wage elasticity at constant output are nearly the same for large and small firms. Thirdly, the estimated output elasticities suggest constant returns to scale in large firms and increasing returns in small ones. Finally, the number of working hours has less impact on employment in small firms than in large ones.     

Firm size,profitability, and savings in Canada

This paper explores the relationship between firm size, profitability, and corporate savings behavior in Canada. It shows that the long-run propensities to save out of profits are much the same for firms of all sizes, although foreign-owned firms generally retain more of their profits compared to domestic firms. Profitability has also been found to be largely independent of variations in firm size, although large foreign-owned firms generally earn higher profits than large domestic firms. The study also finds no evidence for the superiority of the “dividend effect” over the “retained effect”. It is suggested that the relatively high debt ratio experienced by small domestic firms might be better explained by the demand than the supply side of the markets for new equity.     

Firm size and efficiency in the German mechanical engineering industry

Research usually finds a positive size-efficiency relationship, but few studies focus on sectors dominated by small and medium-sized firms (SMEs). This paper fills this gap by analyzing this relationship in the German mechanical engineering industry sector, which is both successful and increasingly dominated by SMEs. The analysis, using a large and representative dataset, finds that small and large firms are, on average, the most efficient ones, while medium-sized firms have, on average, the greatest inefficiencies. Thus, the size-efficiency relationship is U-shaped rather than monotonically increasing. Additionally, the analysis finds that companies with active owner(s) are significantly more efficient and that capital firms are less efficient than firms with personally liable owners. Being located in either East or West Germany has no effect.     

Firm size,efficiency and employment: A review article

Summary S-J's book contains much careful and interesting discussion of small-firm employment data and related issues, and will be read by all workers in the field. However it also contains too much detailed quantification and international comparison of doubtful relevance, at least for most economists, and misses much background material of direct importance for evaluating the role of small firms. As a result, the authors seriously under-estimate the contribution of small business to both employment and efficiency of modern economies, as well as the importance of policy to correct the traditional and still pervasive bias towards large organizations.     

Firm performance and size: Explanations from the small firm sectors

Conclusion This paper has presented the case that small firms deserve greater attention from economists who, in the past, have been interested primarily in larger firms.It is argued that it is unjustifiable to regard the small firm as simply a scaled-down version of a large firm. Instead, in several important areas of economics the small firm behaves in a way which is the opposite to that proposed by conventional theory, calibrated upon the large firm sector. For example it is shown that Gibrat's Law does not apply to the small firm sector. It is also argued that entry by new firms does not necessarily take place when profitability in that industry increases.Given that the small firm sector is becoming of increasing importance in the creation of wealth and employment in most developed countries the paper begins to sketch out the factors which influence the motivations and aspirations of the owners of these businesses and explores their implications for conventional economics.In particular it discusses the role of multiple ownership of small businesses by entrepreneurs. It argues that this little researched topic requires more investigation by theorists to investigate the factors influencing entrepreneurs decisions on the appropriate portfolio of businesses to be owned.This paper has benefitted from the many helpful comments received from Zoltan Acs, Hans-Jurgen Ewers and others attending the symposium. The views expressed, however, are those of the author alone.     

Firm size and productivity in Spain: a stochastic frontier analysis

This paper analyses the performance of the small and medium-sized manufacturing firms during the period 1995–2001, focusing on the degree of technical inefficiency and its determinants. We use a micro panel data set to simultaneously estimate a stochastic frontier production function and the inefficiency determinants using an unbalanced panel of manufacturing firms. Our empirical results suggest that small and medium-sized firms tend to be less inefficient than the large firms are. Also, we centre our analysis in the effect on efficiency of some organisational factors related to the managerial ability to use and adjust capital and labour properly.

High tech manufacturing: Firm size,industry and population density

Location theorists have emphasized the importance of agglomeration economies in explaining the concentration of industrial activity. They have divided these economies into portions that relate to average industry size, firm size, and market size. This study examines these three factors, in the context of value created, and concludes that each is statistically different for high tech industries in comparison to non-high tech industries. This finding adds an important dimension to state industrial development strategies, particularly those focused on high tech.     

Firm size,university based research,and the returns to R&D

This paper compares university-based research relationships between small and large firms as an explanation for the difference in innovative activity across firm sizes. We test the hypothesis that there are diseconomies of scale in producing innovations in large firms due to the inherent bureaucratization process which inhibits both innovative activity as well as the speed with which new inventions move through the corporate system towards the market. By utilizing university-based research relationships, small firms are able to avoid bureaucratic inefficiencies.     

Firm size,strategic advantage,and profit rates in US retailing

Recent industrial economics and marketing strategy literature focuses on the importance of firm size in explaining cross-sectional variations in profit rate. Porter (Competitive Advantage: Creating and Sustaining Superior Performance, Free Press, New York, 1985; and Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press, New York, 1998) argues that advantages accrue to large and small firms, while mid-sized rivals often find themselves “stuck in the middle”. For the general merchandize, apparel and restaurant industries, estimation of a cubic relationship between firm size and return on assets reveals the positive, negative, positive pattern for the linear, squared and cubed firm size terms that is consistent with Porter's hypothesis. Moreover, model coefficients indicate an increased dominance of large firms in certain retail markets.     

Firm size and the demand for energy in Dutch manufacturing, 1978–1986

As in most other industrialized countries the oil price shocks in the seventies led to major rearrangements in the production processes in Dutch manufacturing. The substitution of (expensive) energy consuming processes by less energy intensive ones is analyzed by means of a dynamic equation, relating the energy demand to the level of output, the price of energy and the prices of other inputs. Using a rather unique data set, consisting of panel data pertaining to several thousands of manufacturing firms, it is found that large firms can reduce energy costs more than small firms.This article reports on research carried out in the MOPS-project. Participants of MOPS are the Netherlands Central Bureau of Statistics, the Research Institute for Small and Medium-sized Business in the Netherlands, and the Erasmus University Rotterdam. The views expressed in this article do not necessarily reflect the policies of the Netherlands Central Bureau of Statistics.The authors thank Bert Balk, Jos van Deventer, Peter Kooiman, Huib van de Stadt, Roy Thurik, Wim Vosselman, Ton Werkhoven and two anonymous referees for helpful comments.     

Firm size,small business presence and sales of innovative products: A micro-econometric analysis

In our generalized TOBIT analysis we identify a number of variables which have an impact on a firm's innovation output. Among others we find that larger firms generally have a higher probability of selling some innovative products, although this probability increases less than proportionately with firm size. Given that a firm has some sales of innovative products, the share of such products in a firm's total sales tends to be higher in smaller firms. Moreover, a strong small business presence in a sector seems to enhance imitative innovation but has no influence on true innovations, whereas market concentration has no influence on innovation output in whatever definition. We also find evidence of regional knowledge spill-overs. Furthermore, our results are consistent with Schmookler's hypothesis that the growth of demand enhances innovation. The outcomes about the impact of R&D collaboration and technology transfer on innovation remain ambiguous.