Small firms,business dynamics and differential development of economic well-being

In recent years a growing stream of research has examined the relationships between structural characteristics of regions and their levels of new firm formation. This empirical study aims at supplementing such findings with analyses that include other forms of business dynamics, and also the possible well-being effects of such dynamics. From a unique and comprehensive data set that tracks all births, deaths, expansions, and contractions of commercial business establishments in Sweden 1985–89, six groups of regions with different patterns of dynamics are extracted by means of cluster analysis. The clusters' structural characteristics and their development of economic well-being are also compared. The results suggesta) that the patterns of business dynamics are contingent on the structural characteristics of regions,b) that high formation and turnover of establishments are associated with a relative increase in economic well-being, andc) that small, autonomous firms have a vital role in this process.     

Organic and Acquisitive Growth: Re‐examining,Testing and Extending Penrose's Growth Theory

Edith Penrose's theory of firm growth postulates that a firm's current growth rate will be influenced by the adjustment costs of, and changes to a firm's productive opportunity set arising from, previous growth. Although she explicitly considered the effect of previous organic growth on current organic growth, she was largely silent about the effect of previous acquisitive growth. In this paper we extend Penrose's work to examine how previous rates of organic and acquisitive growth influence current organic growth. Employing a panel of Swedish firms over a 10‐year period, our results suggest the following. First, previous organic growth acts as a constraint on current organic growth. Second, previous acquisitive growth has a positive effect on current organic growth. We conclude that organic growth and acquisitive growth constitute two distinct strategic options facing the firm, which have a differential impact on the future organic growth of the firm.     

Birds of a feather get lost together: new venture team composition and performance

This study explores the relationship between new venture team composition and new venture persistence and performance over time. We examine the team characteristics of a 5-year panel study of 202 new venture teams and new venture performance. Our study makes two contributions. First, we extend earlier research concerning homophily theories of the prevalence of homogeneous teams. Using structural event analysis we demonstrate that team members?? start-up experience is important in this context. Second, we attempt to reconcile conflicting evidence concerning the influence of team homogeneity on performance by considering the element of time. We hypothesize that higher team homogeneity is positively related to short term outcomes, but is less effective in the longer term. Our results confirm a difference over time. We find that more homogeneous teams are less likely to be higher performing in the long term. However, we find no relationship between team homogeneity and short-term performance outcomes.     

Determinants of the Prevalance of Start-ups and High-Growth Firms

The purpose of this study is to identify key institutional determinants of firm emergence and growth. We do this using various types of data from Sweden. A characterization of a number of institutions and policy measures shows that they are likely to have contributed to an environment that discourages entrepreneurial activity and firm growth. Aspects dealt with include: missing arenas for entrepreneurship in the care sectors and for household-related services, taxation of entrepreneurial income, incentives for wealth accumulation, wage-setting institutions and labor market regulations. Using original data, we provide evidence of a low prevalence of nascent entrepreneurs and a small net employment contribution by high-growth firms. We admit that indisputable evidence for the effects of institutional arrangements is almost impossible to establish. However, the consistency of our theoretical arguments and empirical data makes a strong case for the notion that the Swedish case illustrates the costs of giving too little weight to economic renewal in policy making.     

Entrepreneurship and Dynamic Capabilities: A Review,Model and Research Agenda*

abstract The emergent literature on dynamic capabilities and their role in value creation is riddled with inconsistencies, overlapping definitions, and outright contradictions. Yet, the theoretical and practical importance of developing and applying dynamic capabilities to sustain a firm's competitive advantage in complex and volatile external environments has catapulted this issue to the forefront of the research agendas of many scholars. In this paper, we offer a definition of dynamic capabilities, separating them from substantive capabilities as well as from their antecedents and consequences. We also present a set of propositions that outline (1) how substantive capabilities and dynamic capabilities are related to one another, (2) how this relationship is moderated by organizational knowledge and skills, (3) how organizational age affects the speed of utilization of dynamic capabilities and the learning mode used in organizational change, and (4) how organizational knowledge and market dynamism affect the likely value of dynamic capabilities. Our discussion and model help to delineate key differences in the dynamic capabilities that new ventures and established companies have, revealing a key source of strategic heterogeneity between these firms.     

Some reflection on research ‘Schools’ and geographies

Reflecting on real and perceived differences between European and North American research cultures, I challenge views that ‘European’ research is under appreciated or discriminated against, and caution against isolationist European positions. Instead, I argue that although no distinctive and coherent European tradition or culture really exists, there may be elements of the prevalent research culture that can be turned into an advantage for Europe-based and/or European-trained researchers in helping to influence and improve one, global research conversation. Of course, a range of sub-communities and sub-conversations will and should exist, but there is no reason for these to be based on geography.     

Asset specificity and behavioral uncertainty as moderators of the sales growth — Employment growth relationship in emerging ventures

Sales growth and employment growth are the two most widely used growth indicators for new ventures; yet, sales growth and employment growth are not interchangeable measures of new venture growth. Rather, they are related, but somewhat independent constructs that respond differently to a variety of criteria. Most of the literature treats this as a methodological technicality. However, sales growth with or without accompanying employment growth has very different implications for managers and policy makers. A better understanding of what drives these different growth metrics has the potential to lead to better decision making. To improve that understanding we apply transaction cost economics reasoning to predict when sales growth will be or will not be accompanied by employment growth. Our results indicate that our predictions are borne out consistently in resource-constrained contexts but not in resource-munificent contexts.     

Bricolage as a Path to Innovativeness for Resource‐Constrained New Firms

Evidence suggests that both nascent and young firms (henceforth: “new firms”)—despite typically being small and resource‐constrained—are sometimes able to innovate effectively. Such firms are seldom able to invest in lengthy and expensive development processes, which suggests that they may frequently rely instead on other pathways to generate innovativeness within the firm. In this paper, we develop and test arguments that “bricolage,” defined as making do by applying combinations of the resources at hand to new problems and opportunities, provides an important pathway to achieve innovation for new resource‐constrained firms. Through bricolage, resource‐constrained firms engage in the processes of “recombination” that are core to creating innovative outcomes. Based on a large longitudinal dataset, our results suggest that variations in the degree to which firms engage in bricolage behaviors can provide a broadly applicable explanation of innovativeness under resource constraints by new firms. We find no general support for our competing hypothesis that the positive effects may level off or even turn negative at high levels of bricolage.     

The Extent of Overestimation of Small Firm Job Creation – An Empirical Examination of the Regression Bias

Davis, Haltiwanger and Schuh (1993; 1996a; 1996b) suggested that the belief that small firms are major contributors of new jobs is largely based on methodological flaws. In particular, their reasoning about the "regression fallacy", i.e., that temporary fluctuations in size systematically biases estimates in favor of small firm job creation, has caught on interest among researchers and concern among policy makers. In this article we attempt to estimate empirically the extent of overestimation of small firm job creation due to the "regression fallacy". It is concluded that the effect is very small and that correcting for it does not lead to qualitative change of the results. There may be good reasons to question to what extent small firms can lead economic development, and whether it is good or bad if they do create most new jobs, but concern for the "regression fallacy" does not seem to be an important issue in this context.     

Entrepreneurial growth: The role of international knowledge acquisition as moderated by firm age

In line with repeated recent calls for research on specific forms of growth rather than on an undifferentiated notion of “total growth,” our study contributes to the understanding of entrepreneurial growth. By this we mean growth through expansion into new geographic markets and/or via the introduction of new products or services. Building on Penrose's theory of the growth of the firm and on the research streams she has in part inspired, we investigate the impact of knowledge acquisition from international markets on entrepreneurial growth both at home and abroad. We further suggest that the effects of international knowledge acquisition on entrepreneurial growth will vary with firm age. Utilizing longitudinal data on 138 small and medium-sized enterprises (SMEs), we find that the acquisition of knowledge from international markets fuels growth through market development, and that this effect is stronger for international expansion than domestic expansion. Our results also show that firm age negatively moderates the relationship between international knowledge acquisition and entrepreneurial growth via the introduction of new products or services. Specifically, international knowledge acquisition has a positive effect on growth via new products/services development in young firms, but a negative effect in mature firms. We assume this reflects changes over time in how international knowledge is managed.