Capabilities and firm growth: the role of formal collaboration agreements

The paper presents an empirical analysis of the effect of formal network agreements on growth of firm in Italy in the years 2011-2013. The theoretical background is given by evolutionary theories that assign a key role in determining the ability of firms to capture business opportunities to internal capabilities and to external knowledge and capabilities. We suggest that firms establishing formal relationships with other firms can extend the “set of things that they are able to do†–the set of capabilities– so that they are able to capture opportunities and grow. The study is based on a novel database of Italian firms that matches networked firms in year 2012 with firms that did not sign a formal network agreement but possess similar structural characteristics. In order to deal with possible self-selection phenomenon, we use difference-in-differences regression models to assess the effect on growth of belonging to a formal network agreement. Moreover, to study the effect of characteristics of network we employ two stage Hackman regression models. Results show that networked firms have a higher growth rate and that the size of the network plays a role. Results are in line with the evolutionary interpretation and suggest that formal network agreement can function as long-range antennas for firms that are more constrained from the geographical point of view. These agreements allow to acquire capabilities and knowledge of the market that allow firms to expand their economic activity.