The Determinants of Growth for Small and Medium Sized Firms. The Role of the Availability of External Finance

We present an empirical analysis of the determinants of growth for a sample of Italian small and medium sized firms. We show that, when investigating a sample which includes firms between 10 and 50 employees and a set of variables larger than those usually considered in the literature, growth – net of industry characteristics and ex ante market power – turns out to be significantly affected not only by size and age, but also by state subsidies, export capacity and credit rationing. By adopting a multivariate approach we also show that these findings are confirmed after controlling for heteroskedasticity, survivorship bias and serial correlation. Our results suggest that the hypothesis of independence of firm growth from the initial size and other factors (usually referred to as Gibrat's law in the literature) is not rejected for large firms, while it does not hold for small and medium sized firms under financial constraints in a "bank-oriented" financial system in which access to external finance is difficult.

[1]  L. Becchetti.  Finance, investment and innovation: A theoretical and empirical comparative analysis , 1995 .

[2]  Guochang Zhang,et al.  Ownership Concentration, Risk Aversion and the Effect of Financial Structure on Investment Decisions , 1998 .

[3]  G. Saint‐Paul.  Technological Choice, Financial Markets and Economic Development , 1992 .

[4]  John R. Baldwin,et al.  Selection Versus Evolutionary Adaptation: Learning and Post- Entry Performance , 1995 .

[5]  Paul Dunne,et al.  Age, Size, Growth and Survival: UK Companies in the 1980s , 1994 .

[6]  John Mcconnell,et al.  Additional evidence on equity ownership and corporate value , 1990 .

[7]  Dietmar Harhoff,et al.  Legal Form, Growth and Exit of West German Firms - Empirical Results for Manufacturing, Construction, Trade and Service Industries , 1998 .

[8]  H. Short.  Ownership, Control, Financial Structure and the Performance of Firms , 1994 .

[9]  M. S. Kumar,et al.  GROWTH, ACQUISITION ACTIVITY AND FIRM SIZE: EVIDENCE FROM THE UNITED KINGDOM* , 1985 .

[10]  A. Tschoegl,et al.  Size, Growth, and Transnationality among the World's Largest Banks , 1983 .

[11]  J. Mata.  Firm growth during infancy , 1994 .

[12]  Employment Generation by Small Producers in the Canadian Manufacturing Sector , 1994 .

[13]  Francesca Lotti,et al.  Does Gibrat’s Law Hold in the Case of Young, Small Firms? , 1999 .

[14]  Mark J. Roberts,et al.  Patterns of Firm Entry and Exit in U.S. Manufacturing Industries , 1988 .

[15]  J. Sutton.  Gibrat's Legacy , 1996 .

[16]  W. Gale.  Economic Effects of Federal Credit Programs , 1991 .

[17]  Steven M. Fazzari,et al.  Financing Constraints and Corporate Investment , 1987 .

[18]  S. Nickell.  Competition and Corporate Performance , 1996, Journal of Political Economy.

[19]  Andrew Chesher,et al.  Testing the Law of Proportionate Effect , 1979 .

[20]  David S. Evans.  Tests of Alternative Theories of Firm Growth , 1987, Journal of Political Economy.

[21]  Talat Mahmood,et al.  The Post-Entry Performance of New Firms , 1995 .

[22]  Bronwyn H Hall,et al.  The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector , 1986 .

[23]  Z. Ács,et al.  Innovation, Market Structure, and Firm Size , 1987 .

[24]  Enrico Santarelli,et al.  Start-up size and industrial dynamics: some evidence from Italian manufacturing , 1999 .

[25]  P. J. Huber.  The behavior of maximum likelihood estimates under nonstandard conditions , 1967 .

[26]  Firms´productivity and the export market: a nonparametric approach , 1999 .

[27]  Bob Chirinko,et al.  Business Fixed Investment Spending: Modeling Strategies, Empirical Results, and Policy Implications , 1993 .

[28]  H. White.  Maximum Likelihood Estimation of Misspecified Models , 1982 .

[29]  R. Hubbard,et al.  Capital-Market Imperfections and Investment , 1997 .

[30]  Fabio Schiantarelli,et al.  Investment, Finacial Factors and Cash Flow: Evidence from UK Panel Data , 1989 .

[31]  David de Meza,et al.  The Borrower's Curse: Optimism, Finance and Entrepreneurship , 1996 .

[32]  P. Geroski.  What do we know about entry , 1995 .

[33]  Edwin Mansfield,et al.  ENTRY, GIBRAT'S LAW, INNOVATION, AND THE GROWTH OF FIRMS , 1962 .

[34]  Boyan Jovanovic.  Selection and the evolution of industry , 1981 .

[35]  Charles P. Himmelberg,et al.  Evidence on the role of cash flow for investment , 1995 .

[36]  M. Gertler,et al.  Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms , 1991 .

[37]  J Wagner,et al.  Firm size, firm growth, and persistence of chance: Testing GIBRAT's law with establishment data from Lower Saxony, 1978–1989 , 1992 .

[38]  F. Schiantarelli,et al.  Monopolistic competition and the Q theory of investment , 1990 .

[39]  Anil K. Kashyap,et al.  Credit Conditions and the Cyclical Behavior of Inventories , 1994 .

[40]  F. Schiantarelli.  Financial Constraints and Investment: Methodological Issues and International Evidence , 1996 .

[41]  David J. Storey,et al.  Financial constraints on the growth of high technology small firms in the United Kingdom , 1997 .

[42]  Stephen Nickell,et al.  What makes firms perform well , 1997 .

[43]  Saul Lach,et al.  Is "Learning-by-Exporting" Important? Micro-Dynamic Evidence from Colombia, Mexico and Morocco , 1996 .

[44]  S. J. Prais,et al.  The Analysis of Business Concentration: A Statistical Approach , 1956 .

[45]  G. Hall,et al.  Small firm growth, access to capital markets and financial structure: Review of issues and an empirical investigation , 1996 .

[46]  Franklin Allen,et al.  A welfare comparison of intermediaries and financial markets in Germany and the US , 1995 .

[47]  B. Aw,et al.  Productivity and the export market: A firm-level analysis , 1995 .

[48]  Matthias Almus,et al.  Testing "Gibrat's Law" for Young Firms – Empirical Results for West Germany , 2000 .

[49]  Andrei Shleifer,et al.  Corporate Ownership Around the World , 1998 .

[50]  L. Becchetti,et al.  Financial constraints on investments: A three-pillar approach , 2001 .

[51]  J. Mata,et al.  The survival of new plants: Start-up conditions and post-entry evolution , 1995 .