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Growth and Survival Determinants of Chinese Private Firms: Fieldwork evidence and econometric estimates

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  • Gavin C Reid
  • Zhibin Xu

Abstract

This paper reports on one of the first empirical attempts to investigate small firm growth and survival, and their determinants, in the Peoples’ Republic of China. The work is based on field work evidence gathered from a sample of 83 Chinese private firms (mainly SMEs) collected initially by face-to-face interviews, and subsequently by follow-up telephone interviews a year later. We extend the models of Gibrat (1931) and Jovanovic (1982), which traditionally focus on size and age alone (e.g. Brock and Evans, 1986), to a ‘comprehensive’ growth model with two types of additional explanatory variables: firm-specific (e.g. business planning); and environmental (e.g. choice of location). We estimate two econometric models: a ‘basic’ age-size-growth model; and a ‘comprehensive’ growth model, using Heckman’s two-step regression procedure. Estimation is by log-linear regression on cross-section data, with corrections for sample selection bias and heteroskedasticity. Our results refute a pure Gibrat model (but support a more general variant) and support the learning model, as regards the consequences of size and age for growth; and our extension to a comprehensive model highlights the importance of location choice and customer orientation for the growth of Chinese private firms. In the latter model, growth is explained by variables like planning, R&D orientation, market competition, elasticity of demand etc. as well as by control variables. Our work on small firm growth achieves two things. First, it upholds the validity of ‘basic’ size-age-growth models, and successfully applies them to the Chinese economy. Second, it extends the compass of such models to a ‘comprehensive’ growth model incorporating firm-specific and environmental variables.

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Bibliographic Info

Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0913.

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Date of creation: Nov 2009
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Handle: RePEc:san:crieff:0913

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Keywords: Chinese private firms; models of small firm growth; choice of location; customer orientation;

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  1. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  2. Singh, Ajit & Whittington, Geoffrey, 1975. "The Size and Growth of Firms," Review of Economic Studies, Wiley Blackwell, vol. 42(1), pages 15-26, January.
  3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  4. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  5. Takehiko Yasuda, 2005. "Firm Growth, Size, Age and Behavior in Japanese Manufacturing," Small Business Economics, Springer, vol. 24(1), pages 1-15, December.
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  7. Hart, Peter E & Oulton, Nicholas, 1996. "Growth and Size of Firms," Economic Journal, Royal Economic Society, vol. 106(438), pages 1242-52, September.
  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.
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  10. David B. audretsch & Erik E. Lehmann, 2005. "Mansfield's Missing Link: The Impact of Knowledge Spillovers on Firm Growth," The Journal of Technology Transfer, Springer, vol. 30(2_2), pages 207-210, 01.
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  12. Zélia Serrasqueiro & Paulo Maçãs Nunes, 2008. "Performance and size: empirical evidence from Portuguese SMEs," Small Business Economics, Springer, vol. 31(2), pages 195-217, August.
  13. Das, Sanghamitra, 1995. "Size, age and firm growth in an infant industry: The computer hardware industry in India," International Journal of Industrial Organization, Elsevier, vol. 13(1), pages 111-126, March.
  14. Heshmati, Almas, 2000. "On the Growth of Micro and Small Firms," Working Paper Series in Economics and Finance 396, Stockholm School of Economics.
  15. Stephen Hymer & Peter Pashigian, 1962. "Firm Size and Rate of Growth," Journal of Political Economy, University of Chicago Press, vol. 70, pages 556.
  16. Dunne, Paul & Hughes, Alan, 1994. "Age, Size, Growth and Survival: UK Companies in the 1980s," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 115-40, June.
  17. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
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