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Growth Processes of Italian Manufacturing Firms

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Author Info
Alex Coad
Rekha Rao
Federico Tamagni

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Abstract

We propose a multidimensional empirical analysis of the growth processes of firms, focusing on the coevolution of employment growth, sales growth, growth of profits and labour productivity growth. Based on firm level data about Italian manufacturing firms, 1989-1997, we apply a reduced-form vector autoregression model to analyze the lead-lag associations between the different dimension of firm growth. Findings suggest that employment growth precedes sales growth and growth of profits, and that sales growth is also associated with subsequent profits growth. There appears to be little feedback of either sales or profits on employment growth, however, and there is no clear association of employment, sales or profits growth with subsequent changes in labour productivity. Productivity growth, in turn, is more strongly associated with subsequent growth of profits than it does with subsequent growth of either employment or sales. Growth of profits, therefore, tends to represent the absorbing dimension of the overall processes of firm growth. Quantile regressions reveal asymmetries between growth processes for growing and shrinking firms.

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Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2008/20.

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Date of creation: 02 Oct 2008
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Handle: RePEc:ssa:lemwps:2008/20

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Related research
Keywords: Household Consumption Expenditure; Budget Shares; Sum of Log-Normal Distributions;

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  1. Eric Bartelsman & Stefano Scarpetta & Fabiano Schivardi, 2005. "Comparative analysis of firm demographics and survival: evidence from micro-level sources in OECD countries," Industrial and Corporate Change, Oxford University Press, vol. 14(3), pages 365-391, June.
  2. Alex Coad, 2007. "A Closer Look at Serial Growth Rate Correlation," Review of Industrial Organization, Springer, vol. 31(1), pages 69-82, August. [Downloadable!] (restricted)
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  3. Giulio Bottazzi & Alex Coad & Nadia Jacoby & Angelo Secchi, 2005. "Corporate Growth and Industrial Dynamics: Evidence from French Manufacturing," LEM Papers Series 2005/21, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  4. Marcus Asplund & Volker Nocke, 2003. "Firm Turnover in Imperfectly Competitive Markets," PIER Working Paper Archive 03-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
  5. Toke Reichstein & Michael S. Dahl & Bernd Ebersberger, & Morten Jensen, 2006. "The Devil Dwells in the Tails A Quantile Regression Approach to Firm Growth," DRUID Working Papers 06-34, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies. [Downloadable!]
  6. Koenker, Roger & Xiao, Zhijie, 2006. "Quantile Autoregression," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 980-990, September. [Downloadable!] (restricted)
  7. Baumol, William J, et al, 1970. "Earnings Retention, New Capital and the Growth of the Firm," The Review of Economics and Statistics, MIT Press, vol. 52(4), pages 345-55, November. [Downloadable!] (restricted)
  8. Brouwer, Erik & Kleinknecht, Alfred & Reijnen, Jeroen O N, 1993. "Employment Growth and Innovation at the Firm Level," Journal of Evolutionary Economics, Springer, vol. 3(2), pages 153-59, May.
  9. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  10. Metcalfe, J S, 1994. "Competition, Fisher's Principle and Increasing Returns in the Selection Process," Journal of Evolutionary Economics, Springer, vol. 4(4), pages 327-46, November.
  11. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 111-132, Fall.
  12. Paul Geroski & Klaus Gugler, 2004. "Corporate growth convergence in Europe," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 597-620, October. [Downloadable!] (restricted)
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  13. Geroski, Paul A, 1999. "The Growth of Firms in Theory and in Practice," CEPR Discussion Papers 2092, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
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  15. G. Bottazzi & E. Cefis & G. Dosi & A. Secchi, 2007. "Invariances and Diversities in the Patterns of Industrial Evolution: Some Evidence from Italian Manufacturing Industries," Small Business Economics, Springer, vol. 29(1), pages 137-159, June. [Downloadable!] (restricted)
  16. Binder, M. & Hsaio, C. & Pesaran, M.H., 2000. "Estimation and Inference in Short Panel Vector Autoregressions with Unit Roots and Cointegration," Cambridge Working Papers in Economics 0003, Faculty of Economics, University of Cambridge. [Downloadable!]
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  17. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
  18. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
  19. Alex Coad, 2005. "Testing the principle of 'growth of the fitter': The relationship between profits and firm growth," Emory Economics 0531, Department of Economics, Emory University (Atlanta). [Downloadable!]
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  20. Roger Koenker & Kevin F. Hallock, 2001. "Quantile Regression," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 143-156, Fall. [Downloadable!] (restricted)
  21. Delmar, Frederic & Davidsson, Per & Gartner, William B., 2003. "Arriving at the high-growth firm," Journal of Business Venturing, Elsevier, vol. 18(2), pages 189-216, March. [Downloadable!] (restricted)
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  1. Giulio Bottazzi & Giovanni Dosi & Nadia Jacoby & Angelo Secchi & Federico Tamagni, 2009. "Corporate performances and market selection. Some comparative evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00422142_v1, HAL. [Downloadable!]
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