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Growth processes of Italian manufacturing firms

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  • Coad, Alex
  • Rao, Rekha
  • Tamagni, Federico

Abstract

Abstract This paper presents a multidimensional empirical analysis of firm growth. Exploiting census data on Italian manufacturing firms, 1989-1997, we estimate a reduced-form VAR to analyze the co-evolution of employment growth, sales growth, growth of profits and labour productivity growth. Our main findings suggest that (i) employment growth precedes sales growth; (ii) productivity growth lacks any strong association with subsequent growth of the other indicators; (iii) profits growth represents the 'absorbing dimension' of the growth processes. This picture contrasts with 'accelerator models', predicting sales are the driver of the growth process, and is also at odds with theories of firm-industry evolution assuming productivity or profits advantages to be the driver of strong market selection/reallocation mechanisms. Instead, the findings reveal the existence of (weak) Penrose and (strong) Kaldor-Verdoorn effects, and more generally convey the view that employment growth is the key driver of firm expansion, while profits, once made, are not reinvested.

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Bibliographic Info

Article provided by Elsevier in its journal Structural Change and Economic Dynamics.

Volume (Year): 22 (2011)
Issue (Month): 1 (February)
Pages: 54-70

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Handle: RePEc:eee:streco:v:22:y:2011:i:1:p:54-70

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Web page: http://www.elsevier.com/locate/inca/525148

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Keywords: Firm growth VAR Employment growth Productivity growth;

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References

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  1. Giulio Bottazzi & Angelo Secchi & Federico Tamagni, 2008. "Productivity, profitability and financial performance," Industrial and Corporate Change, Oxford University Press, vol. 17(4), pages 711-751, August.
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Citations

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Cited by:
  1. Giulio Bottazzi & Giovanni Dosi & Nadia Jacoby & Angelo Secchi & Federico Tamagni, 2011. "Corporate performances and market selection: some comparative evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00642692, HAL.
  2. Alex Coad & Agustí Segarra & Mercedes Teruel, 2010. "Like milk or wine: Does firm performance improve with age?," Working Papers XREAP2010-10, Xarxa de Referència en Economia Aplicada (XREAP), revised Sep 2010.
  3. Lee, Sanghoon, 2014. "The relationship between growth and profit: evidence from firm-level panel data," Structural Change and Economic Dynamics, Elsevier, vol. 28(C), pages 1-11.
  4. Nuri Yildirim, 2011. "No Appealing Future For High Growth – Low Profitability Firms: Evidence from Turkey’s Top 1000," Working Papers 2011/2, Turkish Economic Association.

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