Showing papers by "Alex Coad published in 2007"

Firm Growth : a Survey

Abstract: We survey the phenomenon of the growth of firms drawing on literature from economics, management, and sociology. We begin with a review of empirical ‘stylised facts’ before discussing theoretical contributions. Firm growth is characterized by a predominant stochastic element, making it dicult to predict. Indeed, previous empirical research into the determinants of firm growth has had a limited success. We also observe that theoretical propositions concerning the growth of firms are often amiss. We conclude that progress in this area requires solid empirical work, perhaps making use of novel statistical techniques.

A Closer Look at Serial Growth Rate Correlation

Abstract: Serial correlation in annual growth rates carries a lot of information on growth processes ‐ it allows us to directly observe firm performance as well as to test theories. Using a 7-year balanced panel of 10 000 French manufacturing firms, we observe that small firms typically are subject to negative correlation of annual growth rates, whereas larger firms display positive correlation. Furthermore, we find that those small firms that experience extreme positive or negative growth in any one year are unlikely to repeat this performance in the following year.

Empirical investigations into the characteristics and determinants of the growth of firms

Abstract: This thesis presents empirical investigations into the growth of firms, using datasets on French and US manufacturing firms. We begin with a lengthy literature review to clearly identify the gaps in the existing literature. We then investigate Gibrat's law and examine the distribution of growth rates. We investigate serial correlation patterns in growth rates and observe that small firms have negative autocorrelation whilst larger firms have positive autocorrelation. In a theoretical discussion we contrast the mainstream 'financial constraints' theory with evolutionary theory, and conclude that neoclassical work may have exaggerated the extent of financial constraints. In our dataset, firm growth is more or less independent from financial performance and we conclude that selection pressures are weak In the final part we consider the relationship between innovation and firm performance Quantile regression techniques reveal that innovation leads to remarkably superior performance in a minority of cases (the 'superstar firms') but has little effect for the 'average firm' .

The Employment Effects of Innovations in High-Tech Industries

Abstract: The issue of technological unemployment receives perennial popular attention. Although there are previous empirical investigations that have focused on the relationship between innovation and employment, the originality of our approach lies in our choice of method. We focus on four 2-digit manufacturing industries that are known for their high patenting activity. We then use Principal Components Analysis to generate a firm- and year-specific ‘innovativeness’ index by extracting the common variance in a firm’s patenting and R&D expenditure histories. To begin with, we explore the heterogeneity of firms by using semi-parametric quantile regression. Whilst some firms may reduce employment levels after innovating, others increase employment. We then move on to a weighted least squares (WLS) analysis, which explicitly takes into account the dierent job-creating potential of firms of dierent

Exploring the "mechanics" of firm growth : evidence from a short-panel VAR

Abstract: This paper offers many new insights into the processes of firm growth by applying a vector autoregression (VAR) model to longitudinal panel data on French manufacturing firms. We observe the co-evolution of key variables such as growth of employment, sales, gross operating surplus and labour productivity growth. Preliminary results suggest that employment growth is succeeded by the growth of sales, which in turn is followed by growth of profits. Generally speaking, however, growth of profits is not followed by much employment growth or sales growth.

Firm growth and productivity growth: evidence from a panel VAR

Abstract: This paper offers new insights into the processes of firm growth by applying a reduced form vector autoregression (VAR) model to longitudinal panel data on French manufacturing firms (1996-2004). We observe the co-evolution of key variables such as growth of employment, sales, and gross operating surplus, as well as growth of multifactor productivity. It seems that employment growth is negatively associated with subsequent growth of productivity. This latter result, however, is sensitive to our choice of productivit indicator, i.e. multifactor productivity or labour productivity.

Firm Growth and R&D Expenditure

Abstract: We apply a panel vector autoregression model to a firm-level longitudinal database to observe the co-evolution of sales growth, employment growth, profits growth and growth of R&D expenditure. Contrary to expectations, profit growth seems to have little detectable effect on R&D investment. Instead, firms appear to increase their total R&D expenditure following growth in sales and growth of employment. In a sense, firms behave ‘as if’ they aim for a roughly constant ratio of R&D to employment (or sales). We observe heterogeneous effects for growing or shrinking firms however, suggesting that firms are less willing to reduce their R&D levels following a negative growth shock than they are willing to increase R&D after a positive shock.

Neoclassical vs evolutionary theories of financial constraints: critique and prospectus

Abstract: Complicated neoclassical models predict that if investment is sensitive to current financial performance, this is a sign that something is "wrong" and is to be regarded as a problem for policy. Evolutionary theory, on the other hand, refers to the principle of "growth of the fitter" to explain investment-cash flow sensitivities as the workings of a healthy economy. In particular, I attack the neoclassical assumption of managers maximizing shareholder-value. Such an assumption is not a helpful starting point for empirical studies into firm growth. one caricature of neoclassical theory could be "Assume firms are perfectly efficient. Why aren't they getting enoug funding ?", whereas evolutionary theory considers that firms are forever struggling to grow. This essay highlights how policy guidelines can be framed by the initial modelling assumptions, even though these latter are often chosen with analytical tractability in mind rather than realism.

The employment effects of innovation

Abstract: The issue of technological unemployment receives perennial popular attention. Although there are previous empirical investigations that have focused on the relationship between innovation and employment, the originality of our approach lies in our choice of method. We focus on four 2-digit manufacturing industries that are known for their high patenting activity. We then use Principal Components Analysis to generate a firm- and year-specific ‘innovativeness’ index by extracting the common variance in a firm’s patenting and R&D expenditure histories. To begin with, we explore the heterogeneity of firms by using semi-parametric quantile regression. Whilst some firms may reduce employment levels after innovating, others increase employment. We then move on to a weighted least squares (WLS) analysis, which explicitly takes into account the dierent job-creating potential of firms of dierent sizes. As a result, we focus on the eect of innovation on total number of jobs, whereas previous studies have focused on the eect of innovation on firm behavior. Indeed, previous studies have typically taken the firm as the unit of analysis, implicitly weighting each firm equally according to the principle of ‘one firm equals one observation’. Our results suggest that firm-level innovative activity leads to employment creation that may have been underestimated in previous studies. L’innovation des entreprises et croissance de l’emploi

Disentangling the firm growth process: evidence from a recursive panel VAR

Abstract: We attempt to describe the coevolution of employment growth, sales growth and growth of profits in a panel of French manufacturing firms 1996-2004. Our analysis entails ‘recursive’ panel vector autoregressions, whereby we impose the structure of employment growth leading to contemporaneous sales growth, which in turn is associated with contemporaneous growth of profits. We observe that whilst employment growth has a direct negative association with profit growth, there are indirect eects through

Disentangling the firm growth process: evidence from a recursive panel VAR

Abstract: We attempt to describe the coevolution of employment growth, sales growth and growth of profits in a panel of French manufacturing firms 1996-2004. Our analysis entails ‘recursive’ panel vector autoregressions, whereby we impose the structure of employment growth leading to contemporaneous sales growth, which in turn is associated with contemporaneous growth of profits. We observe that whilst employment growth has a direct negative association with profit growth, there are indirect effects through which employment growth leads to sales growth which in turn has a large effect on profits growth. The net effect of employment growth is thus positive growth of profits. Counter to some ‘replicator dynamics’ theories of industrial development, profit growth is not followed by much subsequent growth of employment.

Innovation and Firm Growth in High-Tech Sectors: A Quantile Regression Approach

Abstract: We relate innovation to sales growth for incumbent firms in four high-tech sectors. A firm, on average, experiences only modest growth and may grow for a number of reasons that may or may not be related to 'innovativeness'. However, given that firms are heterogeneous and that growth rates distributions are heavy-tailed, it may be misleading to use regression techniques that focus on the 'average firm'. Using a quantile regression approach, we observe that innovativeness is of crucial importance for a handful of 'superstar' fast-growth firms. We also discuss policy implications of our results.

The employment effects of innovation

Abstract: The issue of technological unemployment receives perennial popular attention. Although there are previous empirical investigations that have focused on the relationship between innovation and employment, the originality of our approach lies in our choice of method. We focus on four 2-digit manufacturing industries that are known for their high patenting activity. We then use Principal Components Analysis to generate a firm-and year-specific "innovativeness" index by extracting the common variance in a firm's patenting and R&D expenditure histories. To begin with, we explore the heterogeneity of firms by using semi-parametric quantile regression. Whilst some firms may reduce employment levels after innovating, others increase employment. We then move on to a weighted least squares (WLS) analysis, which explicitly takes into account the different job-creating potential of firms of different sizes. As a result, we focus on the effect of innovation on total number of jobs, whereas previous studies have focused on the effect of innovation on firm behavior. Indeed, previous studies have typically taken the firm as the unit of analysis, implicity weighting each firm equally according to the principle of "one firm equals one observation". Our results suggest that firm-level innovative activity leads to employment creation that may have been underestimated in previous studies.

Exploring the Distribution of Product Quality

Abstract: We investigate the structure of demand by focusing on the distribution of prices within well-defined classes of goods. We observe considerable heterogeneity - products that are functionally similar but presumably of dierent ‘quality’ may sell at very dierent prices. We analyze distribution of prices for bottles of wine, used cars, and week-long holidays, and observe that the the resulting distribution is more skewed than the lognormal but less skewed than a power law. We then present a theoretical model whereby products can distinguish themselves along multiple hedonic dimensions of ‘performance’, and where these dimensions interact multiplicatively. We can reproduce a distribution of product quality which is in between the cases of the lognormal and power law specifications, depending upon the degree with which the dierent dimensions are positively correlated amongst themselves.