Long-term firm growth: an empirical analysis of US manufacturers 1959–2015

Abstract

Firm growth is an essential feature of market economies, shaping together macroeconomic performance and the evolution of industry structures. As a potential indicator of organizational “fitness” within a competitive environment, firm growth is also a central concern to both the practice and theory of business strategy. Despite both its theoretical and practical importance, though, growth remains a poorly understood property of firms. While previous studies have documented the fat-tailed nature of firm growth rates, we know far less about the patterns of growth rates over long periods of time. For instance, do “fast growers” tend to maintain their relative growth rates advantages over long periods or is superior growth a transitory phenomenon? Is, as predicted by evolutionary and capability-based theories of the firm, the process of firm growth path-dependent or is it more akin to a random walk? The answers to these questions are central to building a robust theory of firm growth. This article attempts to address this gap in our empirical knowledge of firm growth using a dataset that spans 50 years, which allows the abandonment of the assumption, common to all incumbent studies, that the stochastic paths of all firms stem from the same generating process. These exploratory results indicate that growth rate persistence is there and may be even substantial for some firms, but it is rare. We also study the links between the micro-properties of firm growth within sectors and the patterns of aggregate growth of these same sectors. Indeed, we find circumstantial but widespread evidence that heterogeneity across firms correlates with industry dynamism.

One swallow does not make a summer: episodes and persistence in high growth

“…Third, once we focus on the HG spells and their hazard rate, most of the characteristics that explain a higher probability of starting an HG spell (younger age, smaller, size, higher productivity, being active in a market in its "expansionary" phase) are also associated with a higher likelihood of persisting in the HG state. However, given that it is rare for a firm to experience HGEs that are longer than 1 year (only about 5% of firms show HGEs that last for 3 years or longer), it is harder to "characterize" persistence in HG than the transition from NHG to HG, even with our large set of determinants (Dosi et al 2020). In Section 4.3.3, we deepen the analysis of the determinants of both length (i.e., persistence) and repetition of HG spells within a firm as time passes.…”

“…The author imposed a certain structure to the dependency of future growth on past HG in the following ways: (i) estimating the effect after a specific number of years; and (ii) focusing on just one type of transition, that is, from HG status in one period to either HG (persistence) or an NHG status, while transitions from NHG to HG are not explicitly explored. By employing a sample of US-listed manufacturing firms in an extremely long period , Dosi et al (2020) showed that, while there are cases of (even high) growth persistence across firms, they are rare and not fully accounted for by a random process.…”

Firm size and economic concentration: An analysis from a lognormal expansion

“…However, previous studies using dynamic econometric models provided evidence of growth rates persistence. However, the magnitude and direction of this effect are not entirely clear [33]. For instance, some studies found that the growth rate in a specific period was positively correlated with its first lag in growth [34,53,[73][74][75].…”

“…This may result in density misspecification and misleading conclusions on economic policy recommendations, since FS dynamics is a determining factor of economic growth and stability. Note that, small changes in the way companies are distributed may have a significant macroeconomic effect, e.g., increased employment and income distribution [ 9 , 32 , 33 ].…”

“…In this framework, and taken Gibrat [ 1 ] as a reference, studies have mainly focused on analyzing the effects of FS distribution on FG [ 21 ]. However, the assumptions behind Gibrat’s law remain one of the most controversial and explored topics in the studies on industrial organization because the empirical evidence shows that in some industries or economies, FG depends on FS and/or company history [ 10 , 33 ].…”