The Birth, Growth and Demise of Entrepreneurial Firms
6. Firm growth In this chapter we investigate the evolution and growth of new firms based on our evolutionary perspective where initial resource endowments, interrelationships between performance and environment, and feedback from profitability are central concepts. We now engage in a more detailed exploration of these ideas and put them to the test with the same empirical data described in previous chapters. We start by explicating the importance of firm growth as a main creator of new jobs in modern economies. After this follows a section discussing how new firms grow and the tremendous heterogeneity in growth rates, with most new firms growing slowly or not at all, while a fraction of these grow at a tremendous rate to become large corporations in a few years’ time. This is followed by a detailed econometric examination of how environmental/industry characteristics as well as the role of financial profitability shape firm growth. We use quantile regression to take account of the large heterogeneity in growth rates. NEW FIRM GROWTH AND JOB CREATION Contrary to previously held assumptions, it was revealed in the 1980s that the majority of new jobs in the USA were created by small and mediumsized companies, the majority of which were younger than four years of age (Birch, 1979). Studies of other industrialized nations revealed similar patterns in the United Kingdom (Storey & Johnson, 1987), and the impact on job creation of SMEs has also been validated in small countries such as Norway (Klette & Mathiassen, 1996) and in countries with...
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