Advanced Search
MyIDEAS: Login to save this article or follow this journal

How Fast Can Firms Grow?

Contents:

Author Info

  • Johann Peter Murmann

    ()
    (University of New South Wales)

  • Jenny Korn

    ()
    (University of Illinois at Chicago)

  • Hagen Worch

    ()
    (Swiss Distance University of Applied Sciences)

Registered author(s):

    Abstract

    Building on recent research on dynamic, high-growth firms – so-called “gazelles” – this paper explores a simple question that is important in both theoretical and practical terms: What is the fastest rate at which firms can grow? Based on a sample of seven high-growth firms (Cisco, GM, IBM, Microsoft, Sears, Starbucks, and US Steel), we find that 162% is the maximum sales growth rate in any one year that an established company can grow without mergers and acquisitions, while the maximum rate of employee growth is approximately 115% even including some mergers and acquisitions. All of the companies in our sample attained a maximum sales growth rate of above 50%, with most hovering around 75%. Furthermore, the firms’ growth rates exhibit similar patterns. No company experienced its maximum sales growth rate toward the latter part of its history. Every company experienced its slowest employee growth rate after attaining its maximum employee growth rate, usually within a decade of one another. Most importantly, all firms show an average sales growth that exceeds the average employee growth. This finding is an indication that successful growing firms have a superior capability to continuously improve employment efficiency and adjust organizational structures to suit an increasing workforce.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.wiso-net.de/webcgi?START=A60&DOKV_DB=ZECO&DOKV_NO=JFNS66916E1DC1299D8AE23468A0820A623E&DOKV_HS=0&PP=1
    File Function: Main text
    Download Restriction: Access via GENIOS - German Business Information - http://www.genios.de/r_startseite/index.ein

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

    Volume (Year): 234 (2014)
    Issue (Month): 2-3 (April)
    Pages: 210-233

    as in new window
    Handle: RePEc:jns:jbstat:v:234:y:2014:i:2-3:p:210-233

    Contact details of provider:
    Postal: Licher Straße 74, 35394 Gießen
    Phone: +49 (0)641 99 22 001
    Fax: +49 (0)641 99 22 009
    Web page: http://wiwi.uni-giessen.de/home/oekonometrie/Jahrbuecher/
    More information through EDIRC

    Related research

    Keywords: Organizational growth; organizational size; evolution;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Marco Capasso & Elena Cefis, 2012. "Firm Size and Growth Rate Variance: The Effects of Data Truncation," Review of Industrial Organization, Springer, vol. 41(3), pages 193-205, November.
    2. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2008. "Formal versus informal finance : evidence from China," Policy Research Working Paper Series 4465, The World Bank.
    3. Greenwald, Bruce C. & Stiglitz, Joseph E., 1989. "Financial Market Imperfections and Productivity Growth," Working Paper Series 206, Research Institute of Industrial Economics.
    4. Eriksson, Goran, 1984. " Growth, Entry and Exit of Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 86(1), pages 52-67.
    5. Lorenzoni, Gianni & Ornati, Oscar A., 1988. "Constellations of firms and new ventures," Journal of Business Venturing, Elsevier, vol. 3(1), pages 41-57.
    6. Christian Cordes & Peter J. Richerson & Georg Schwesinger, 2009. "How Corporate Cultures Coevolve with the Business Environment: The Case of Firm Growth Crises and Industry Evolution," Papers on Economics and Evolution 2009-21, Philipps University Marburg, Department of Geography.
    7. Bryson, John R & Keeble, David & Wood, Peter, 1997. " The Creation and Growth of Small Business Service Firms in Post-industrial Britain," Small Business Economics, Springer, vol. 9(4), pages 345-60, August.
    8. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August.
    9. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-53, May.
    10. Barringer, Bruce R. & Greening, Daniel W., 1998. "Small business growth through geographic expansion: A comparative case study," Journal of Business Venturing, Elsevier, vol. 13(6), pages 467-492, November.
    11. Huynh, Kim P. & Petrunia, Robert J., 2010. "Age effects, leverage and firm growth," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 1003-1013, May.
    12. Bertoni, Fabio & Colombo, Massimo G. & Grilli, Luca, 2011. "Venture capital financing and the growth of high-tech start-ups: Disentangling treatment from selection effects," Research Policy, Elsevier, vol. 40(7), pages 1028-1043, September.
    13. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
    14. Daily, Catherine M. & Dalton, Dan R., 1992. "The relationship between governance structure and corporate performance in entrepreneurial firms," Journal of Business Venturing, Elsevier, vol. 7(5), pages 375-386, September.
    15. Roberta Piergiovanni, 2010. "Gibrat's Law in the "Third Italy": Firm Growth in the Veneto Region," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 41(1), pages 28-58.
    16. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
    17. Murray E. Fulton & Joan R. Fulton & J. Stephen Clark & Claudia Parliament, 1995. "Cooperative growth: Is it constrained?," Agribusiness, John Wiley & Sons, Ltd., vol. 11(3), pages 245-261.
    18. Ulrich Witt, 2007. "Firms as Realizations of Entrepreneurial Visions," Journal of Management Studies, Wiley Blackwell, vol. 44(7), pages 1125-1140, November.
    19. Erik Stam, 2010. "Growth beyond Gibrat: firm growth processes and strategies," Small Business Economics, Springer, vol. 35(2), pages 129-135, September.
    20. Cordes, Christian & Richerson, Peter J. & McElreath, Richard & Strimling, Pontus, 2008. "A naturalistic approach to the theory of the firm: The role of cooperation and cultural evolution," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 125-139, October.
    21. Khurshid M. Kiani & Ellen Huiru Chen & Zagros Madjd-Sadjadi, 2012. "Financial factors and firm growth: evidence from financial data on Taiwanese firms," Quantitative Finance, Taylor & Francis Journals, vol. 12(8), pages 1299-1314, January.
    22. Steven Klepper & Elizabeth Graddy, 1990. "The Evolution of New Industries and the Determinants of Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 27-44, Spring.
    23. Zhao, Liming & Aram, John D., 1995. "Networking and growth of young technology-intensive ventures in China," Journal of Business Venturing, Elsevier, vol. 10(5), pages 349-370, September.
    24. Erzo G.J. Luttmer, 2010. "On the mechanics of firm growth," Staff Report 440, Federal Reserve Bank of Minneapolis.
    25. Miroslav Mateev & Yanko Anastasov, 2010. "Determinants of small and medium sized fast growing enterprises in central and eastern Europe: a panel data analysis," Financial Theory and Practice, Institute of Public Finance, vol. 34(3), pages 269-295.
    26. Michael Peneder, 2010. "The Impact of Venture Capital on Innovation Behaviour and Firm Growth," WIFO Working Papers 363, WIFO.
    27. Cabral, Luís M B & Mata, José, 2001. "On the Evolution of the Firm Size Distribution: Facts and Theory," CEPR Discussion Papers 3045, C.E.P.R. Discussion Papers.
    28. Birley, Sue & Westhead, Paul, 1994. "A taxonomy of business start-up reasons and their impact on firm growth and size," Journal of Business Venturing, Elsevier, vol. 9(1), pages 7-31, January.
    29. Janvier Desire Nkurunziza, 2010. "The effect of credit on growth and convergence of firm size in Kenyan manufacturing," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 19(3), pages 465-494.
    30. Alex Coad & Jaganaddha Tamvada, 2012. "Firm growth and barriers to growth among small firms in India," Small Business Economics, Springer, vol. 39(2), pages 383-400, September.
    31. Magnus Henrekson & Dan Johansson, 2010. "Gazelles as job creators: a survey and interpretation of the evidence," Small Business Economics, Springer, vol. 35(2), pages 227-244, September.
    32. Hamna Ahmed & Naved Hamid, 2011. "Financing Constraints: Determinants and Implications for Firm Growth in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 317-346, September.
    33. Yan Bai & Jing Zhang & Cristina Arellano, 2009. "Firm Dynamics and Financial Development," 2009 Meeting Papers 152, Society for Economic Dynamics.
    34. Gifford, Sharon, 1992. "Allocation of entrepreneurial attention," Journal of Economic Behavior & Organization, Elsevier, vol. 19(3), pages 265-284, December.
    35. Daskalopoulou, Irene & Petrou, Anastasia, 2010. "Entrepreneurial growth expectations and information flows in networks," MPRA Paper 22663, University Library of Munich, Germany.
    36. Wade M Danis & Dan S Chiaburu & Marjorie A Lyles, 2010. "The impact of managerial networking intensity and market-based strategies on firm growth during institutional upheaval: A study of small and medium-sized enterprises in a transition economy," Journal of International Business Studies, Palgrave Macmillan, vol. 41(2), pages 287-307, February.
    37. Shane, Scott A., 1996. "Why franchise companies expand overseas," Journal of Business Venturing, Elsevier, vol. 11(2), pages 73-88, March.
    38. Siddharthan, N S & Lall, Sanjaya, 1982. "The Recent Growth of the Largest U.S. Multinationals," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 44(1), pages 1-13, February.
    39. Wagner, Joachim, 1994. "The Post-entry Performance of New Small Firms in German Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 141-54, June.
    40. Cubbin, John & Hall, Graham, 1983. "Directors' remuneration in the theory of the firm: Specification and testing of the null hypothesis," European Economic Review, Elsevier, vol. 20(1-3), pages 333-348, January.
    41. Ioannis Giotopoulos & Georgios Fotopoulos, 2010. "Intra-Industry Growth Dynamics in the Greek Services Sector: Firm-Level Estimates for ICT-Producing, ICT-Using, and Non-ICT Industries," Review of Industrial Organization, Springer, vol. 36(1), pages 59-74, February.
    42. Thompson, R. Steve, 1994. "The franchise life cycle and the Penrose effect," Journal of Economic Behavior & Organization, Elsevier, vol. 24(2), pages 207-218, July.
    43. Georgios Fotopoulos & Ioannis Giotopoulos, 2010. "Gibrat’s law and persistence of growth in Greek manufacturing," Small Business Economics, Springer, vol. 35(2), pages 191-202, September.
    44. John Sutton, 1997. "Gibrat's Legacy," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 40-59, March.
    45. Greening, Daniel W. & Barringer, Bruce R. & Macy, Granger, 1996. "A qualitative study of managerial challenges facing small business geographic expansion," Journal of Business Venturing, Elsevier, vol. 11(4), pages 233-256, July.
    46. McPherson, Michael A., 1996. "Growth of micro and small enterprises in southern Africa," Journal of Development Economics, Elsevier, vol. 48(2), pages 253-277, March.
    47. Toke Reichstein & Michael Dahl & Bernd Ebersberger & Morten Jensen, 2010. "The devil dwells in the tails," Journal of Evolutionary Economics, Springer, vol. 20(2), pages 219-231, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:jns:jbstat:v:234:y:2014:i:2-3:p:210-233. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Winker).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.