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The Dynamics of Firm Growth - a re-examination

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  • Lööf, Hans

    () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)

Abstract

This article provides evidence that shed further light on the dynamic relationships between finance, physical investment, R&D, productivity and profit. Estimating relationships for 5,289 observations on Swedish manufacturing firms with 50 or more employees over the 1992-2000 periods, the following substantial empirical findings emerge. First, physical investments are sensitive to both internal financing (profit) and external financing (expressed as leverage, or the ratio of debt over equity and debt) while R&D is only weakly affected by the firm’s finance conditions. Second, no robust correlation between knowledge investments and ordinary investments can be established. Third, R&D has a strong effect on productivity and profit. The reverse relationship is fragile and typically insignificant. The causality between physical capital and productivity is bidirectional, while increased profit leads to more capital but not the vice versa.

Suggested Citation

  • Lööf, Hans, 2008. "The Dynamics of Firm Growth - a re-examination," Working Paper Series in Economics and Institutions of Innovation 128, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0128
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    Keywords

    Financial constraints; R&D; Investments; Productivity; Panel data;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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