Knowledge Intensive Entrepreneurship
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Knowledge Intensive Entrepreneurship

The Birth, Growth and Demise of Entrepreneurial Firms

Frédéric Delmar and Karl Wennberg

How and why are firms created, expanded and terminated by entrepreneurs in the knowledge intensive economy? The authors show these entrepreneurship processes are firmly embedded in a given social and economic context, that shapes the process by which some individuals discover entrepreneurial opportunities, creating new firms that sometimes grow to remarkable size, but more often stay mundane or eventually exit.
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Chapter 6: Firm Growth

Frédéric Delmar and Karl Wennberg


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 a large proportion...

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