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Growth processes of Italian manufacturing firms

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  • Coad, Alex
  • Rao, Rekha
  • Tamagni, Federico

Abstract

This paper presents a multidimensional empirical analysis of firm growth. Exploiting census data on Italian manufacturing firms, 1989-1997, we estimate a reduced-form VAR to analyze the co-evolution of employment growth, sales growth, growth of profits and labour productivity growth. Our main findings suggest that (i) employment growth precedes sales growth; (ii) productivity growth lacks any strong association with subsequent growth of the other indicators; (iii) profits growth represents the 'absorbing dimension' of the growth processes. This picture contrasts with 'accelerator models', predicting sales are the driver of the growth process, and is also at odds with theories of firm-industry evolution assuming productivity or profits advantages to be the driver of strong market selection/reallocation mechanisms. Instead, the findings reveal the existence of (weak) Penrose and (strong) Kaldor-Verdoorn effects, and more generally convey the view that employment growth is the key driver of firm expansion, while profits, once made, are not reinvested.

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  • Coad, Alex & Rao, Rekha & Tamagni, Federico, 2011. "Growth processes of Italian manufacturing firms," Structural Change and Economic Dynamics, Elsevier, vol. 22(1), pages 54-70, February.
    • Handle: RePEc:eee:streco:v:22:y:2011:i:1:p:54-70
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    Cited by:

    1. Daniele Moschella & Federico Tamagni & Xiaodan Yu, 2019. "Persistent high-growth firms in China’s manufacturing," Small Business Economics, Springer, vol. 52(3), pages 573-594, March.
    2. Giulio Bottazzi & Giovanni Dosi & Nadia Jacoby & Angelo Secchi & Federico Tamagni, 2010. "Corporate performances and market selection: some comparative evidence," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 19(6), pages 1953-1996, December.
    3. Giovanni Dosi & Emanuele Pugliese & Pietro Santoleri, 2017. "Growth and survival of the `fitter'? Evidence from US new-born firms," LEM Papers Series 2017/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    4. Coad, Alex & Segarra, Agustí & Teruel, Mercedes, 2013. "Like milk or wine: Does firm performance improve with age?," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 173-189.
    5. Ciarli, Tommaso & Coad, Alex & Moneta, Alessio, 2023. "Does exporting cause productivity growth? Evidence from Chilean firms," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 228-239.
    6. Alaa Adden A. Abuhommous, 2017. "Net Working Capital and Firm Growth," International Review of Management and Marketing, Econjournals, vol. 7(4), pages 131-137.
    7. Álvarez, Roberto & Vergara, Sebastián, 2013. "Trade exposure, survival and growth of small and medium-size firms," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 185-201.
    8. Arranz Sombría, M. Rosa & Miralles-Quirós, José Luis & Daza-Izquierdo, Julio, 2017. "Interrelación entre el crecimiento y la rentabilidad de la banca comercial en España/Interrelation between Growth and Profitability in Spanish Commercial Banks," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 35, pages 611-628, Agosto.
    9. Cahill, Sean & Rich, Tabitha & Cozzarin, Brian, 2015. "Innovation in the Canadian Food Processing Industry: Evidence from the Workplace and Employee Survey," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 18(2), pages 1-22, May.
    10. Kahsay Gerezihar Tsaedu & Zhihong Chen, 2021. "The Dynamics of Firm Growth in Sub-Saharan Africa: Evidence from Ethiopian Manufacturing Sector 1996–2017," Journal of Industry, Competition and Trade, Springer, vol. 21(3), pages 367-392, September.
    11. Nuri YILDIRIM, 2011. "No Appealing Future For High Growth – Low Profitability Firms: Evidence from Turkey’s Top 1000," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 26(307), pages 31-45.
    12. Lee, Sanghoon, 2014. "The relationship between growth and profit: evidence from firm-level panel data," Structural Change and Economic Dynamics, Elsevier, vol. 28(C), pages 1-11.
    13. González-Fernández, Marcos & González-Velasco, Carmen, 2018. "Innovation and corporate performance in the Spanish regions," Journal of Policy Modeling, Elsevier, vol. 40(5), pages 998-1021.
    14. Rabinovich, Joel, 2023. "Tangible and intangible investments and sales growth of US firms," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 200-212.
    15. Juan Federico & Joan-Lluis Capelleras, 2015. "The heterogeneous dynamics between growth and profits: the case of young firms," Small Business Economics, Springer, vol. 44(2), pages 231-253, February.
    16. Guglielmo Forges Davanzati & Rosario Patalano & Guido Traficante, 2019. "The Italian economic stagnation in a Kaldorian theoretical perspective," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 36(3), pages 841-861, October.
    17. Guglielmo Forges Davanzati & Rosario Patalano & Guido Traficante, 2016. "The Italian economic decline in a Kaldorian theoretical perspective," Working Papers PKWP1606, Post Keynesian Economics Society (PKES).
    18. Darko B. Vukovic & Lubov Spitsina & Ekaterina Gribanova & Vladislav Spitsin & Ivan Lyzin, 2023. "Predicting the Performance of Retail Market Firms: Regression and Machine Learning Methods," Mathematics, MDPI, vol. 11(8), pages 1-23, April.
    19. Alex Coad & Marc Cowling & Josh Siepel, 2017. "Growth processes of high-growth firms as a four-dimensional chicken and egg," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 26(4), pages 537-554.
    20. Millemaci, Emanuele & Ofria, Ferdinando, 2016. "Supply and demand-side determinants of productivity growth in Italian regions," Structural Change and Economic Dynamics, Elsevier, vol. 37(C), pages 138-146.
    21. Seungkyu Yoo & Jaejun Kim, 2015. "The Dynamic Relationship between Growth and Profitability under Long-Term Recession: The Case of Korean Construction Companies," Sustainability, MDPI, vol. 7(12), pages 1-17, December.

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    More about this item

    Keywords

    Firm growth VAR Employment growth Productivity growth;

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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