A Survey of Theories and Empirical Evidence
Chapter 7: Other Determinants of Firm Growth
In the previous sections we investigated some of the determinants of firm growth rates. The relationship between firm size and growth rate was investigated in Chapter 4. In Chapter 5, we considered the associations between profits and productivity and firm growth. In Chapter 6, we focused on the role of innovation in explaining firm growth rates. In this chapter we look at other factors that have been shown to exert an influence on growth rates. At the end of this chapter, however, we take stock of the findings of the last four chapters and acknowledge that, although there are some factors that are significantly associated with firm growth rates, that firm growth has a preponderant random aspect. The combined explanatory power of explanatory variables on firm growth is nonetheless rather modest. 7.1 AGE The relationship between size and growth has received a great deal of attention in empirical work, as we discussed above in section 4.2. Relatedly, the relationship between a firm’s age and its growth rate has also been frequently investigated. Age and size are certainly closely related, and in some cases they are both taken to represent what is essentially the same phenomenon (see for example the model in Greiner, 1972). Older firms are often assumed to be more inert and less capable of adapting to a changing environment. Older firms may lack the drive and entrepreneurial spark that is required to observe new business opportunities and then build upon them. The routinized nature of production in firms...
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