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Corporate performances and market selection. Some comparative evidence

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Author Info
Giulio Bottazzi
Giovanni Dosi
Nadia Jacoby
Angelo Secchi
Federico Tamagni

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Abstract

Diverse theories of industry dynamics predict heterogeneity in production efficiency to be the driver of firms' growth, survival and industrial change, either through a direct link between efficiency and growth, or through an indirect effect via profitabilities, as more productive firms can enjoy higher profit margins which, under imperfect capital markets, allow them to invest and grow more. Does the empirical evidence bear such predictions? This paper explores the dynamics of selection and reallocation through an investigation of the productivity-profitability-growth relations at the firm level. Exploiting large panels of Italian and French industrial firms, we find that heterogeneity in efficiencies primarily yield persistent profitability differentials, whereas the relationships of corporate growth with either productivity or profitability appear much weaker, if at all existent. This suggests that selection forces are much less strong than usually assumed. Rather, the links between efficiency and corporate growth seem profoundly mediated by large degrees of behavioural freedom. The results robustly applies across different industrial sectors and across the two countries.

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Publisher Info
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 2009/13.

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Date of creation: 29 Sep 2009
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Handle: RePEc:ssa:lemwps:2009/13

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Related research
Keywords: firms heterogeneity; corporate growth; productivity; profitability; market selection; cross-country comparisons;

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
D20 - Microeconomics - - Production and Organizations - - - General
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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    Other versions:
  2. Winter, S. G. & Kaniovski, Y. M. & Dosi, G., 2000. "Modeling industrial dynamics with innovative entrants," Structural Change and Economic Dynamics, Elsevier, vol. 11(3), pages 255-293, September. [Downloadable!] (restricted)
    Other versions:
  3. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Entry, Exit and Establishment Survival in UK Manufacturing," Journal of Industrial Economics, Blackwell Publishing, vol. 51(1), pages 91-112, 03. [Downloadable!] (restricted)
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    Other versions:
  5. Dosi, Giovanni, et al, 1995. " Learning, Market Selection and the Evolution of Industrial Structures," Small Business Economics, Springer, vol. 7(6), pages 411-36, December.
  6. Bottazzi, Giulio & Dosi, Giovanni & Rocchetti, Gaia, 2001. "Modes of Knowledge Accumulation, Entry Regimes and Patterns of Industrial Evolution," Industrial and Corporate Change, Oxford University Press, vol. 10(3), pages 609-38, September.
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  7. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
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    Other versions:
  11. Dosi, Giovanni, 1988. "Sources, Procedures, and Microeconomic Effects of Innovation," Journal of Economic Literature, American Economic Association, vol. 26(3), pages 1120-71, September. [Downloadable!] (restricted)
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  14. Griliches, Zvi & Regev, Haim, 1995. "Firm productivity in Israeli industry 1979-1988," Journal of Econometrics, Elsevier, vol. 65(1), pages 175-203, January. [Downloadable!] (restricted)
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  19. Geroski, Paul A & Machin, Stephen & Walters, Christopher F, 1997. "Corporate Growth and Profitability," Journal of Industrial Economics, Blackwell Publishing, vol. 45(2), pages 171-89, June. [Downloadable!] (restricted)
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