All grown up? The fate after 15 years of a quarter of a million UK firms born in 1998

Abstract

The theory of firm growth is in a rather unsatisfactory state. However, the analysis of large firm-level datasets which have become available in recent years allows us to begin building an evidence base which can, in turn, be used to underpin the development of more satisfactory theory. Here we study the 239 thousand UK private sector firms born in 1998 over their first 15 years of life. A first, and quite striking, finding is the extraordinary force of mortality. By age 15, 90% of the UK firms born in 1998 are dead, and, for those surviving to age 15, the hazard of death is still about 10% a year. The chance of death is related to the size and growth of firms in an interesting way. Whilst the hazard rate after 15 years is largely independent of size at birth, it is strongly affected by the current (age 14) size. In particular, firms with more than five employees are half as likely to die in the next year as firms with less than five employees. A second important finding is that most firms, even those which survive to age 15, do not grow very much. By age 15 more than half the 26,000 survivors still have less than five jobs. In other words, the growth paths – what we call the ‘growth trajectories’ – of most of the 26,000 survivors are pretty flat. However, of the firms that do grow, firms born smaller grow faster than those born larger. Another striking finding is that growth is heavily concentrated in the first five years. Whilst growth does continue, even up to age 15, each year after age five it involves only a relatively small proportion of firms. Finally, there are two groups of survivors which contribute importantly to job creation. Some are those born relatively large (with more than 20 jobs) although their growth rate is quite modest. More striking though, is a very small group of firms born very small with less than five jobs (about 5% of all survivors) which contribute a substantial proportion (more than one third) of the jobs added to the cohort total by age 15.

My first employee: an empirical investigation

“…Nevertheless, the start-up rate in Denmark is not significantly different than in advanced economies with other levels of unemployment benefits and the survival rate of new firms in Denmark-where about one half are closed within the first 3 years-is similar to findings in other advanced economies (e.g. Coad et al 2013;Anyadike-Danes and Hart 2014). Second, we have no information on the relationship between the founder and the first employee (e.g.…”

A High‐Growth Firm Contingency Test of the Formalization‐Performance Relationship

“…Therefore, the lack of effective management tools can restrain growth and even cause failure (Greiner ). In growth‐oriented firms, in order to cope with the increased complexity resulting from a greater number of employees, formal policies and practices need to be cultivated if growth is to be sustained (Arthur ). What our results suggest is that the benefits of formalization for performance are likely to be felt mainly in later stages of development.…”

“…While there is no common agreement on the exact cutoff point that differentiates emergent ventures from established ones, scholars have relied on firms' survival ability and their economic contribution to distinguish them. For instance, Anyadike‐Danes and Hart () found that two thirds of new firms die within the first five years, and firms' survival chances only improve after that period. Moreover, regarding growth ability, the same authors found that the fastest rates of growth are recorded up to age five as well.…”

“…Formal HR practices, and especially those with commitment approach, positively affect firm performance (Collins and Smith ; Davila ; Delaney and Huselid ; Delmar and Shane ; Huselid ), because they reinforce employee–employer relationships (Rousseau ). Earlier research demonstrates that formal commitment‐based HR practices, such as providing training programs to develop employees' skills (e.g., Arthur ), encouraging employees to work harder by assessing their performance regularly or linking it with incentives (e.g., Borman ), and the implementation of organizational structures that encourage employees' participation and autonomy (e.g., cross‐functional teams), are associated with higher productivity and, thus, increased firm performance. The argument is that, as a result of the perceived investment from the organization on employees' self‐development and self‐interests, employees become more likely to work harder toward the organization's goals (Collins and Smith ).…”

From the Cabinet of Curiosities: The misdirection of research and policy debates on small firm growth

“…Anyadike-Danes and Hart (2018) have recently argued that the theory of firm growth is in a rather unsatisfactory state. To summarise, albeit somewhat crudely, one view is that firm growth, certainly in a firm's early years, can be regarded as essentially 'random' (see Coad et al, 2013aCoad et al, , 2013bCoad et al, , 2015.…”