The Growth of Firms
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The Growth of Firms

A Survey of Theories and Empirical Evidence

Alex Coad

Much progress has been made in empirical research into firm growth in recent decades due to factors such as the availability of detailed longitudinal datasets, more powerful computers and new econometric techniques. This book provides an up-to-date catalogue of empirical work, as well as a coherent theoretical structure within which these new results can be interpreted and understood. It brings together a large body of recent research on firm growth from a multidisciplinary perspective, providing an up-to-date synthesis of stylized facts and empirical regularities. Numerous empirical findings and theories of firm growth are also surveyed and compared in order to evaluate their validity.
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Chapter 9: Growth Strategies

Alex Coad


After starting the book by reviewing the empirical evidence on firm growth, the previous chapter contrasted the evidence with some broad-based theoretical predictions on firm growth. These theories did not fare exceptionally well in accounting for the variation in growth rates across firms, presumably because it is not easy to generalize across heterogeneous firms facing dissimilar circumstances. In this chapter (and also the next) we take an approach that can perhaps be described as ‘appreciative theorizing’ (Nelson and Winter, 1982, pp. 45–8); we will seek to provide tailored descriptions of certain aspects of the firm growth process, without trying to unify these aspects together under one centralized theoretical monolith. We begin by discussing the attitudes of firms towards growth (section 9.1), and then the available means of achieving growth (such as diversification, acquisition and internationalization – see sections 9.2–9.4). It appears useful to relate these two topics to the distinction between ‘demand’ for growth and ‘supply’ of growth opportunities, respectively. Firm growth requires both a willing attitude to take up growth opportunities, and also the availability of suitable opportunities. However, in the long run, the distinction between supply and demand determinants of growth may become blurred (Penrose, 1960). Entrepreneurs and managers with a strong desire to grow will surely find suitable growth opportunities if they search for them. Correspondingly, one could suppose that even firms with a marked aversion to growth will eventually take up additional growth opportunities if these are attractive enough. 9.1 ATTITUDES TO GROWTH As firms...

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