firm growth

cavalier attitude towards patents, copyrights and trademarks. Given this unfavourable setting for IP protection, the potential of intellectual property for creating market power (e.g. by right of monopoly provision or exclusive production) cannot be transformed readily into ‘ competitive advantage ’ (Hall, 1992) resulting in an unpromising growth outlook. Human capital appears to have a positive influence on firm growth as well, yet it is not statistically significant. Training for top management, socializing activities, and enterprise stimulation schemes, whilst of potential significance, seem to have no impact on firm growth in our modelling. It may be that human capital would be more significantly related to growth were it defined in terms of founders’ education al background, and relevant prior work experience, as in the study of Colombo and Grilli (2005). Reputation, surprisingly, is insignificant (at least in the strongest sense), which is in conflict with the findings of Roberts and Dowling (2002) and Galbreath (2005). Due to inevitable limitations of the data collected, the variable Reputation is defined in limited terms, by the number of advertisements, and the type of advertisement channels, neither of which really capture the idea of reputation as an intangible asset, related, for example, to goodwill: a quality which is intrinsically linked to the customer base of the business. Judged in this light, it is understandable that this IA attribute seems not to affect the growth outcome. It may be that the relationship between reputation and growth is positive and robust for different concepts of reputation (e.g. customer services, product services).

Firm cash flows are used as a proxy for liquidity constraints of the firm in much the same way that they are introduced on the right- hand-side of the empirical investment models in the literature 8 . The rationale for these models being that once we move away from the perfect capital markets world, we find that a firm cannot always separate financial and real decisions. Liquidity problems, often exacerbated by asymmetry of information between suppliers of finance and firms for example, will influence real firm decisio ns such as investment in capital or labour – and by definition then, firm growth as measured by such. We expect these problems to be particularly severe for smaller and younger firms with limited access to capital and capital markets and little in the way of physical capital with which to secure debt. In this model, then, we would predict that both the cash flow and size effects will be particularly pronounced for the smaller firms. Problems like liquidity constraints were found to confront smaller enterprises by Evans and Jovanovic (1989) and Fazzari, Hubbard and Petersen (1988). Harhoff (1998) also argue s that small firms are more likely to be characterised by excess sensitivity to the availability of internal finance 9 . First, smaller firms will be characterized by idiosyncratic risk which would raise the cost of external capital. In addition, a randomly chosen group of small firms will include a relatively large number of young firms, hence outside investors may not yet have sufficient information to distinguish good from bad performers. Second, these firms may also have more limited access to external financial markets. Finally, these firms have less collateral in terms of existing assets which could be used for obtaining externa l loans. But Devereux and Schiantarelli (1990), and Bond, Elston, Mairesse and Mulkay (2003) have found stronger evidence of financial effects on

It is apparent that a firm cannot grow without the willingness of entrepreneurs (or owner-managers), actually to create new commercial organizations that will satisfy their aspirations, and serve their other purposes. Whilst the nature of the entrepreneur is still far from agreed 1 , the development of thought on entrepreneurship has involved the accumulation of a rich, yet diverse and fragmented body of knowledge (e.g. Baumol, 1996; Blanchflower & Oswald, 1998; Davidsson, 2015; Shane & Venkataraman, 2000; Miller and Toulouse, 1988; Bird, 1993; Begley, 1995). From our point of view, a comprehensive view of entrepreneurship might be that the entrepreneur is a manager who drives change, pursues opportunity and creates new value in an innovative way. This willingness to engage in such entrepreneurial behaviour is thereby defined as entrepreneurial orientation (EO) (cf. Bisbe and Malgueño, 2015; Jarrar & Smith, 2014), which is at the core of entrepreneurship (Lumpkin and Dess, 1996; Brown, 1996; Wiklund, 1998). Nonetheless, the link between this core conception of entrepreneurship (i.e. EO) and its implications for small firm growth/performance are not straightforward, to judge by prior research in the West. Some would claim a strong, positive influence between the two (Zahra, 1991; Zahra and Covin, 1995; Wiklund, 1998), or at least a muted one (Rauch, et al. 2009); whereas others would claim no significant positive impact of EO on growth at all, or even a negative impact (Hart, 1992; Smart and Conant, 1994; Auger, et al., 2003). Thus, one of the several purposes of this paper is to conceptualize EO, within the setting of the Chinese economy, and then to examine its relationship with the growth of Chinese firms (cf. Schiff, 2013).

This paper considers a dynamic economy in which firms cannot precom- mit to future wages and workers do not observe persistent firm productivity. Workers search on the job and firms control hire rates at a cost. Wages are determined as a separating signalling equilibrium with the property that more productive firms always pay more so that workers transit from less to more productive employers as they climb the job ladder. The speed of as- cent, however, depends on firm investment in hiring. There is firm turnover: new small start-up firms are created while some existing firms die. Consis- tent with Gibrat’s law, firm growth rates are size independent but increase

Firm Growth is the percentage change in firm sales over the past three years. Government and Foreign are dummy variables that take the value of one if the firm has government or foreign ownership and zero if not. Exporter is a dummy variable that indicates if the firm is an exporting firm. Subsidized is also a dummy variable that indicates if the firm receives subsidies from the national or local authorities. No. of Competitors is the logarithm of the number of the firm’s competitors. Manufacturing and Services are industry dummies. Inflation is the log difference of the consumer price index. GDP per capita is real GDP per capita values in U.S. dollars. GDP is the logarithm of GDP in millions of U.S. dollars. Growth is the growth rate of GDP. Financing, Legal, and Corruption are summary obstacles as indicated in the firm questionnaire. They take values between 1 and 4, where 1 indicates no obstacle and 4 indicates major obstacle. In Panel A, we estimate all regressions using instrumental variables, where the firm level obstacles are instrumented by country level institutional variables (Priv, Laworder and Corrupt ). In Panel B, obstacles are interacted with size dummies — small, medium, and large — and are instrumented by the three country level institutional variables interacted by the three size dummies. In this specification we also control for Size in the regressio n. In Panel C, instead of interacting the obstacles with the three size dummies, we interact them with firm size. In Panel D, the dependent variable, Firm Growth , is replaced by real firm growth constructed using GDP deflator. Inflation is dropped from t he specification. In Panel E, firm growth and obstacles are averaged for different size groups in each country. The averaged firm growth is regressed on averaged obstacles and all macro variables plus an interaction term of the averaged obstacle with a dummy variable that takes the value one if the firm is a small or medium firm and zero otherwise. Each panel also reports Impact - the relevant coefficient evaluated at the mean level of the obstacle, or Impact (L-S), the differential impact on large versus small firms evaluated at the mean level of the obstacle for large and small firms. For brevity we report only the coefficients of the obstacles. Robust standard errors are reported in parentheses. We obtain firm level variables from the WBES. Detailed variable definitions and sources are given in Appendix A.

The role of employee loyalty is important in all businesses regardless of size and age. The main focus of this paper was on employee loyalty. The theoretical development of the role of employee loyalty and its relationship to firm growth was upgraded by using empirical quantitative analysis of the association between employee loyalty and firm growth. The regression analysis moderately confirmed the hypothesis. In addition, the influence of control variables was assessed. The key contribution of this study is the theoretical development and testing of the role of employee loyalty in firm growth. In addition to the scientific contribution, some recommendations for practice – for companies – can be given; recommendations can be important for firm growth: Employee loyalty can be important for firm growth. Employee loyalty can be particularly important for growth in manufacturing firms, whereas in the service sector it may be less important. Employee loyalty can be also important in terms of its relationship to overall satisfaction of employees, because employee loyalty cannot be directly affected by management, but more through building satisfaction elements (Auer and Antoncic 2009). Companies should ensure that their employees are adequately rewarded in the form of various bonuses, praise, the possibility of education, promotion, and the education for flexible behavior. The following elements can be more important than a good for many employees: interpersonal relationships, organizational climate, positive communication, and an adequate flow of internal information. By giving sufficient attention to these employee satisfaction elements, the level of employee loyalty in the company can increase, which can have a positive impact on firm growth. Managers should be aware of the importance of the role of employees for the development of the company. The way of managing employees can be crucial for the way employees talk about the company to their friends and to the organizational external environment. Companies should ensure that employees are proud to say to other people that they are part of the organization. The company can create a good image and reputation by taking a good care of its employees; this may also reduce the cost of promotion.

his paper investigates the effect of changes in special items on future firm growth. Special items are defined as “material events that arise from a firm’s ongoing, continuing activities, but that are either unusual in nature or infrequent in occurrence, but not both (Revsine, Collins & Johnson 2005, as cited in McVay 2006).” Prior research has focused on the implication of special items for future earnings and generally supports the view that special items are less persistent than other earnings components with respect to one-year- ahead earnings (e.g., Fairfield, Sweeney & Yohn 1996; Burgstahler, Jiambalvo & Shevlin 2002). Some studies, however, have raised concerns about the predicted content of special items for future earnings because special items can reflect managers’ strategic attempts to meet reporting benchmarks (e.g., Kinney & Trezevant 1997; McVay 2006). Regardless of how special items affect future earnings, several significant issues remain unexplored, including the predictive content of changes in special items for future earnings growth and other growth measures, such as growth in sales and net operating assets, the latter of which is defined as a firm’s operating assets minus operating liabilities. 1

Other reasons for the negative relationship between eco-strategy in general and firm performance may be that firms might find it difficult to reap the returns on these resource- efficiency practices since they need time before they exert their full effects, or that the intensity of the strategies (which we do not observe in specifications I and II) is not sufficiently high to modify the production process or stimulate the demand through environmental innovation dynamics. Regarding the latter, when we include the investment in eco-strategy (specification III), it seems that greater investment in resource efficiency strategies triggers an improvement in overall firm performance. However, only a few firms in the sample invest intensely in eco-strategies and turn them out to be profitable in terms of firm growth. In contrast, when we split the analysis into former and new members, the large amounts of money spent on resource efficiency strategies are only positive and significant for countries that have recently been incorporated into the EU project.

Third, we provide new analytical evidence on firm growth rate distribution, in the line with the studies by Stanley et al. (1996), Bottazzi et al. (2002), Bottazzi and Secchi (2003), Dahl et al. (2010). If the LPE were to hold, we would obtain Gaussian distributions of firm growth rates. However, recent empirical evidence shows that the growth rate distributions have much fatter tails than the Gaussian distributions, and are usually asymmetric. Our contribution to this literature is based on our choice to use a dataset without exogenous thresholds on firm size. This allows us to obtain firm growth rate distributions that are symmetric, with fat tails. Our analysis shows that size does not affect the location of the distribution (which is why the LPE seems in some cases to be confirmed, e.g. Hart and Prais 1956, or Mansfield 1962), but it affects the variance as well as the magnitude and sign of the skewness. The paper is structured as follows. Section 2 summarizes the relevant literature, Section 3 describes the data and the empirical evidence. Our empirical findings provide the background for the theoretical results developed in Section 4; proofs are provided in the Appendix. Section 5 concludes.

This present study attempts to provide empirical evidence on the influence of managerial capacity problem on a firm growth. It specifically investigates how managerial capabilities relate to the firm growth in private institutions of higher learning in Nigeria. The aspect of managerial capacity considered in this study is the competencies, abilities and firm knowledge. Towards this end, a cross-sectional design with questionnaire survey on 50 employees comprising both academic and non-academic administrative staff of Oduduwa University, Ipetumadu, Osun State, Nigeria was conducted. Self-administered questionnaire procedure was adopted to obtain data pertaining to managerial capabilities and firm growth from the participants. Regression analysis was used to examine the proposed relationship and it was found that finance-fund is significantly related to business performance of the private universities as hypothesized. Discussion on the findings is highlighted, so as the implications for practice and future research. Limitations of the study are also offered.

this relationship for a sample of 27,046 US manufacturing companies between 1976 and 1982 and he found that fi rm growth decreases with fi rm age and fi rm size. Firm size is measured by employment. Very similar results found Evans (1987b), who examined all fi rms in 100 US manufacturing industries in the period 1976– 1980. Firm growth goes down with the number of employees, which is indicator for plant size. Goddard, Wilson and Blandon (2002) dealt with 443 Japanese manufacturing fi rms for years 1980–1996. The Law of proportionate Eff ect was rejected. Nominal assets were used as an indicator of company size. Feizpour, Mahmoudi and Soltani (2010) focused on manufacturing sector (12,712 plants) in Iran for the period 1995–1998. Firm size was measured with the help of number of employees. Smaller fi rms grow faster, thus The Law of proportionate Eff ect was rejected. Dunne and Hughes (1994) examined 2,149 UK companies over the period 1980–1985. For measuring fi rm size they used net assets. Main fi nding of their study is that smaller fi rms grow faster than larger companies. Oliveira and Fortunato (2006) investigated 7,653 Portuguese manufacturing fi rms in the period 1990 to 2001 and they found, that large and mature fi rms grow more slowly than small and young fi rms. They measured fi rm size by number of employees. Almus and Nerlinger (2000) examined the validity of the Gibrat‘s law on the West German manufacturing sector over the period 1989 to 1994. They found out, that smaller fi rms grow faster than larger ones. In this study, company size was measured with the help of number of employees. AmirKhalkali and Mukhopadhyay (2008) examined the Law of proportionate eff ect on the sample of 418 Canadian fi rms in the period 2004–2006. According the results of this study, smaller fi rms grow faster than larger counterparts. Firm size is measured by revenues.

ongoing and persistent improvement of existing business and contributes to identify and develop new business opportunities (Quartz, unknown). Firm growth is an aspect of entrepreneurship especially if it is achieved through the introduction of new goods and services, otherwise firm growth is not an aspect of entrepreneurship if it consists of solely demand-driven volume expansion for existing products or it is achieved through the acquisition of business activities that we already running within another organization. A firm’s critical resources extend beyond the boundaries of the organization and include networks, and resource accessibility as opposed to resource ownership is a sufficient condition for firms to grow (Sepulveda & Gabrielsson, 2013). There are many ways of measuring firm growth. There is relative growth and absolute growth. If a firm has discovered a new niche with a rich resource pool, then this firm will be able to grow without hindrance (Coad, 2007). The number of firms in the niche will also grow due to the new entry of new organizations. If the population grows to a level where the niche’s resource pool is saturated, then the competition between firms will limit the growth rates of firms. This supports the theoretical contributions, that in an economy, productive resources are reallocated from less productive firms to firms that are more productive. Studying firm dynamics and examining how entry of products and firms determine resource allocation (Bloom, et al., 2014) observes that reallocation of resources from unproductive to productive firms drive economic growth. Though firm growth cannot be explained by one particular dimension, organizational determinant have the greatest influence on firm growth (Zhou & Wit, 2009). This study revealed that preparedness to growth, as embedded in a firm’s business model is a more important determinant to firm growth.

The third hypothesis (H3) where it is hypothesized that firm effects Corporate Social Responsibility, it is concluded from the statistical result that growth has no effect on Corporate Social Responsibility. The t-value of firm growth is -1.508 with a significance value of 0.134 or greater than 0.05 (0.134> 0.05). Because the value of significance or probability testing> 0,05 so that hypothesis 3 is rejected. This study proves that property and real estate business in its financial statements do not reveal many aspects of Corporate Social Responsibility due to lack of supervision by parties concerned with Corporate Social Responsibility.

Gibrat’s (1931) ‘law of proportionate effect’, in its simplest form, considers that the growth of firms is best modelled as a stochastic process in which the magnitude of a random ‘growth shock’ over a specific period is independent of a firm’s size. Relatedly, the ‘island models’ developed by Ijiri and Simon (1977), Sutton (1998) and Bottazzi and Secchi (2006b) present statistical processes in which firms are seen as ‘islands’, or independent entities, whose resultant growth is simply a cumulation of the stochastic opportunities they receive in any period. These growth opportunities are supposed to be exogenously created and upon arrival they are randomly allocated across firms. Firms are required to have minimal rationality, and, more generally, these statistical models can be said to have a minimal recourse to any economic theory because growth is entirely explained by random factors. One advantage of this class of models, however, is that they can explain the observed size distribution whilst demonstrating both simplicity and generality. Whilst Gibrat’s law appears to be one of the more useful approaches to modelling firm growth and the evolution of industries, it should nonetheless be remembered that there is a certain rationality and intentionality in the process of firm growth. Another early model considered that the size of an organization has an inherent and quasi- automatic tendency to drift upwards (Parkinson, 1957; see also Starbuck, 1971: 16-17). The rationale of this model is that members of an organization, at all hierarchical levels, are guided by motives of prestige, power, and security. Consider the case of an employee, A, who considers herself overworked. She has three options – she may resign, she may ask to halve her work with a colleague called B, or she may ask the assistance of two subordinates, C and D. In fact, the third option is the only serious one. If she were to resign, she would lose her job and all associated privileges. Were she to ask for B to be appointed, she would merely introduce a rival into her level of the hierarchy (which would also reduce her chances of promotion). As a result, she asks for two assistants. These assistants improve her status in the organization, and furthermore, by dividing her work into two categories (for C and D) she will become entrenched in a position of power because she is the only person who understands the work of both of the assistants. In turn, when C and D consider themselves to be overworked, A will be more than happy to introduce further insubordinated employees. These later additions will improve her standing in the hierarchy, and make her more eligible for promotion and

Analysis of the size-growth relationship is a commonly used approach to the study of the evolution of market structure. In fact, the firm size distribution (FSD) has received considerable attention - since the seminal works of Herbert Simon and his co-authors between the late 1950s and the 1970s (cf. Simon and Bonini, 1958; and Ijiri and Simon, 1964, 1977) - in most theoretical and empirical studies dealing with the overall process of industry dynamics. The empirical evidence showed a FSD highly skewed to the right, meaning that the size distribution of firms is lognormal, both at the industry level and in the overall economy. This piece of evidence is coherent with the so- called Law of Proportionate Effect (or Gibrat’s (1931) Law): as Simon and Bonini (1958) point out, if one “…incorporates the law of proportionate effect in the transition matrix of a stochastic process, […] then the resulting steady-state distribution of the process will be a highly skewed distribution”. Recent evidence based on more complete data sets, suggests that Gibrat’s Law is not confirmed, either for new-born or established firms (for a survey, cf. Geroski, 1995; Lotti et al., 1999), since smaller firms grow more than proportionally with respect to larger ones. This decreasing relationship between size and growth suggests that the distribution of firm sizes is not stationary over time and may differ from the lognormal distribution. Gibrat’s Law, applied to the analysis of market structure, represents the first attempt to explain in stochastic terms the systematically skewed pattern of the size distribution of firms within an industry (Sutton, 1997). In effect, the Law cannot be rejected if a) firm growth follows a random process and is independent from initial size, and b) the resulting distributions of firms’ size are lognormal 1 . Although, from a theoretical viewpoint, labeled as “unrealistic” since Kalecki’s (1945) study on the size distribution of factories in US manufacturing, this result was initially consistent with some empirical studies dealing with incumbent, large firms (Hart and Prais, 1956; Simon and Bonini, 1958; Hymer and Pashigian, 1962).

Empirical studies yield mixed results. Tong and Green(2005) ， Chang et al.(2014) and Danis and Rettl (2014), for example, found that growth is positively related to financial leverage, but Zou and Xiao (2006) and Hovey (2007) gave opposite conclusions. Huang and Song (2006) obtained both positive and negative correlations in their paper. The empirical results of Qian et al. (2009), however, showed that growth has no significant effect on financial leverage. Though previous studies did try to investigate the influence of growth on the capital structure of firms, most of them treat growth as exogenous without more detailed investigation. This paper tries to fix this problem, and thus is closely related to Gaur et al. (2013) and Jiang et al. (2015), in which firm growth is endogenously analyzed. The former is from the perspective of M&A, and the latter is from product market competition. Gaur et al. (2013) put forward the growth probability hypothesis, suggesting that China is an emerging market and thus Chinese firms have a huge growth opportunity. M&A is a strategic tool, not only for growth, but also for China’s stock market’s privatization. Besides, the Chinese government has an informal goal to let more Chinese firms to be listed into the “Global 500”. Therefore, whether horizontal or vertical, M&A can send a signal of the future potential growth.

The reported gross job flows in the previous sections are the result of simultaneous contraction and expansion of firms in a sector or region. In this section we identify the factors that determine firm level job creation and destruction, i.e. firm level expansion and contraction. Following the growth-of-firms literature (Audretsch, 1995; Sutton, 1997), we look at the relationship between firm employment growth and firm size, but enlarge our specification in order to take into account transition- specific effects, i.e. trade orientation and ownership effects. In the related literature, the relationship between firm growth and size has been discussed in the context of Gibrat’s Law, which states that proportionate growth rates of employment 8 are independent of firm size. Many empirical studies for western economies find a negative relationship between firm size and growth, leading to a rejection of Gibrat’s Law. In the context of transition, the failure of the Gibrat’s Law might be interpreted as a test of initial restructuring of large enterprises: under central planning firms were too large and inefficient by the standards of market economies. Transition requires at first the downsizing of large state-owned enterprises. Therefore, looking at the relationship between firm growth and firm size, we might expect to find a negative and significant effect of initial size on firm growth.

Because of the unclear factors that define a firm’s capital structure and increases growth, it seems important to study this topic to see if leverage affects firm growth. Increasing firm performance and growing the firms operations are usually the main target in every business. Firm growth increases the value for shareholders and the firm itself because through growth, firms have more possibilities to generate profit. If the capital structure has an effect on firm growth, it then must be closely planned in order to maximize the firm’s profitability. However, since no optimal capital structure have, and probably will not be found, it is important to study how it affects the firm growth and consequently future profitability. Central banks have tried to support firm growth by offering historically low interest rates after the financial crisis that occurred in 2007 in order to give companies a possibility to increase their business by issuing inexpensive debt. If capital structure affects growth, the low-cost financing may result in unexpected consequences in terms of growth. Because of all the unanswered question in both research areas of capital structure and firm growth, it is highly justified to study how firm growth reacts to different capital structures. There are many empirical studies that give support to that leverage has a negative relationship to firm growth. However these studies are mainly executed before the financial crisis that started in 2007 and thus the results may no longer be valid in modern economy.

A key outcome of the entrepreneurial process is new business creation. Most new businesses employ only one or very few persons. These businesses face completely different issues during their life course than the few new firms that grow substantially. These growing new firms are under pressure to act strategically, especially with respect to the expansion and renewal of their resource base (e.g. via organizational learning), innovation, alliances and possibly internationalisation. Strategic entrepreneurship (Hitt et al., 2001) is a core issue here, especially the use of dynamic capabilities (Eisenhardt and Martin, 2000). Most studies on dynamic capabilities have focused on large, established firms. Thus far there have been no studies tracing the effect of dynamic capabilities on the growth of new firms. This paper will analyse the role of dynamic capabilities in new firm growth, controlling for measures of firm resources, characteristics of the entrepreneur, and aspects of the environment. The central research question is: To what extent do dynamic capabilities affect the growth of new firms?

R&D is an uncertain investment, and the returns to innovation are remarkably skewed (see for example Grabowski et al. (2002)). In many cases, R&D investment has no detectable effect on firm performance (e.g. Geroski et al. (1997); Bottazzi et al. (2001)), although in a minority of cases successful innovators experience significant sales growth (Coad and Rao (2008); H¨ olzl (2009); Stam and Wennberg (2009); Goedhuys and Sleuwaegen (2010)). As such, investment in R&D may increase the variance of sales growth rates in a sample of firms.