Growth and Survival Determinants of Chinese Private Firms: Fieldwork evidence and econometric estimates
This paper reports on one of the first empirical attempts to investigate small firm growth and survival, and their determinants, in the Peoplesâ€™ 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 â€˜comprehensiveâ€™ 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 â€˜comprehensiveâ€™ growth model, using Heckmanâ€™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 â€˜basicâ€™ size-age-growth models, and successfully applies them to the Chinese economy. Second, it extends the compass of such models to a â€˜comprehensiveâ€™ growth model incorporating firm-specific and environmental variables.
|Date of creation:||2009|
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