Untangling the relationships among growth, profitability and survival in new firms
The performance of new firms is important for economic development but research has produced limited knowledge about the key relationships among growth, profitability, and survival for new firms. Based on evolutionary theory, we develop a model about how new firms resolve uncertainty about their ability to prosper in a market by monitoring changes in profitability. Our model predicts selection pressures to weed out underperforming firms and learning to allow survivors to improve performance and grow. We test our theory using a unique panel of knowledge-intensive new firms in Sweden. We find strong support for the notion that profitability enhances both survival and growth, and growth helps profitability but has a negative effect on survival. Implications are discussed.
|Date of creation:||13 Jun 2013|
|Date of revision:|
|Contact details of provider:|| Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden|
Phone: 08-441 59 00
Fax: 08-441 59 29
Web page: http://www.ratio.se/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tor Jakob Klette & Astrid Mathiassen, 1995.
"Job Creation, Job Destruction and Plant Turnover in Norwegian Manufacturing,"
136, Statistics Norway, Research Department.
- Tor Jakob Klette & Astrid Mathiassen, 1996. "Job Creation, Job Destruction and Plant Turnover in Norvegian Manufacturing," Annals of Economics and Statistics, GENES, issue 41-42, pages 97-125.
- P.A. Geroski & José Mata & Pedro Portugal, 2007.
"Founding Conditions and the Survival of New Firms,"
DRUID Working Papers
07-11, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
- Garnsey, E. & Stam, F.C. & Heffernan, P. & Hugo, O., 2003.
"New Firm Growth: Exploring Processes and Paths,"
ERIM Report Series Research in Management
ERS-2003-096-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- Boyan Jovanovic & Glenn MacDonald, 1993.
"The Life-Cycle of a Competitive Industry,"
NBER Working Papers
4441, National Bureau of Economic Research, Inc.
- Jovanovic, B. & MacDonald, G.M., 1992. "The Life-Cycle of Competitive Industry," Papers 92-09, Rochester, Business - Financial Research and Policy Studies.
- Jovanovic, B. & MacDonald, G., 1993. "The Life Cycle of a Competitive Industry," Working Papers 93-34, C.V. Starr Center for Applied Economics, New York University.
- James J. Heckman, 2000.
"Causal Parameters and Policy Analysis in Economics: A Twentieth Century Retrospective,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 115(1), pages 45-97.
- James L. Heckman, 1999. "Causal Parameters and Policy Analysis in Economcs: A Twentieth Century Retrospective," NBER Working Papers 7333, National Bureau of Economic Research, Inc.
- Phillip Kim & Howard Aldrich & Lisa Keister, 2006. "Access (Not) Denied: The Impact of Financial, Human, and Cultural Capital on Entrepreneurial Entryin the United States," Small Business Economics, Springer, vol. 27(1), pages 5-22, August.
- 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, vol. 19(6), pages 1953-1996, December.
- Giulio Bottazzi & Giovanni Dosi & Nadia Jacoby & Angelo Secchi & Federico Tamagni, 2009. "Corporate performances and market selection. Some comparative evidence," LEM Papers Series 2009/13, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Giulio Bottazzi & Giovanni Dosi & Nadia Jacoby & Angelo Secchi & Federico Tamagni, 2009. "Corporate performances and market selection. Some comparative evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00422142, HAL.
- Giulio Bottazzi & Giovanni Dosi & Nadia Jacoby & Angelo Secchi & Federico Tamagni, 2010. "Corporate performances and market selection. Some comparative evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00633924, HAL.
- Langlois, Richard N., 2003.
"Cognitive comparative advantage and the organization of work: Lessons from Herbert Simon's vision of the future,"
Journal of Economic Psychology,
Elsevier, vol. 24(2), pages 167-187, April.
- Richard N. Langlois, 2002. "Cognitive Comparative Advantage and the Organization of Work: Lessons from Herbert Simon's Vision of the Future," Working papers 2002-20, University of Connecticut, Department of Economics.
- David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, March.
- Delmar, Frederic & Davidsson, Per & Gartner, William B., 2003. "Arriving at the high-growth firm," Journal of Business Venturing, Elsevier, vol. 18(2), pages 189-216, March.
- Coad, Alex, 2007.
"Testing the principle of `growth of the fitter': The relationship between profits and firm growth,"
Structural Change and Economic Dynamics,
Elsevier, vol. 18(3), pages 370-386, September.
- Alex Coad, 2005. "Testing the Principle of "Growth of the Fitter": The Relationship between Profits and Firm Growth," Emory Economics 0531, Department of Economics, Emory University (Atlanta).
- Catherine Armington & Zoltan Acs, 2004.
"Job creation and persistence in services and manufacturing,"
Journal of Evolutionary Economics,
Springer, vol. 14(3), pages 309-325, 07.
- Zoltan J. Acs & Catherine Armington, 2004. "Job Creation and Persistence in Services and Manufacturing," Papers on Entrepreneurship, Growth and Public Policy 2004-16, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
- Masatoshi Kato & Yuji Honjo, 2006. "Market Share Instability and the Dynamics of Competition: a Panel Data Analysis of Japanese Manufacturing Industries," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 28(2), pages 165-182, 03.
- Audretsch, David B, 1991. "New-Firm Survival and the Technological Regime," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 441-50, August.
- repec:adr:anecst:y:1996:i:41-42:p:05 is not listed on IDEAS
- Marc Cowling, 2004. "The Growth -- Profit Nexus," Small Business Economics, Springer, vol. 22(1), pages 1-9, 02.
- Metcalfe, J S, 1994. "Evolutionary Economics and Technology Policy," Economic Journal, Royal Economic Society, vol. 104(425), pages 931-44, July.
- Cooper, Arnold C. & Gimeno-Gascon, F. Javier & Woo, Carolyn Y., 1994. "Initial human and financial capital as predictors of new venture performance," Journal of Business Venturing, Elsevier, vol. 9(5), pages 371-395, September.
- Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2010.
"Recent Advances in the Empirics of Organizational Economics,"
CEP Discussion Papers
dp0970, Centre for Economic Performance, LSE.
- Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2010. "Recent Advances in the Empirics of Organizational Economics," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 105-137, 09.
- Nick Bloom & Raffaella Sadun & John Van Reenen, 2010. "Recent advances in the empirics of organizational economics," LSE Research Online Documents on Economics 28721, London School of Economics and Political Science, LSE Library.
- Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-83, June.
- Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March.
- Klevorick, Alvin K. & Levin, Richard C. & Nelson, Richard R. & Winter, Sidney G., 1995.
"On the sources and significance of interindustry differences in technological opportunities,"
Elsevier, vol. 24(2), pages 185-205, March.
- Alvin K. Klevorick & Richard C. Levin & Richard R. Nelson & Sidney G. Winter, 1993. "On the Sources and Significance of Interindustry Differences in Technological Opportunities," Cowles Foundation Discussion Papers 1052, Cowles Foundation for Research in Economics, Yale University.
- Alex Coad, 2010.
"Exploring the processes of firm growth: evidence from a vector auto-regression,"
- Alex Coad, 2010. "Exploring the processes of firm growth: evidence from a vector auto-regression," Industrial and Corporate Change, Oxford University Press, vol. 19(6), pages 1677-1703, December.
- Covin, Jeffrey G. & Slevin, Dennis P. & Heeley, Michael B., 2000. "Pioneers and followers: Competitive tactics, environment, and firm growth," Journal of Business Venturing, Elsevier, vol. 15(2), pages 175-210, March.
- Heckman, James J, 1979.
"Sample Selection Bias as a Specification Error,"
Econometric Society, vol. 47(1), pages 153-61, January.
- Davidsson, Per & Steffens, Paul & Fitzsimmons, Jason, 2009. "Growing profitable or growing from profits: Putting the horse in front of the cart?," Journal of Business Venturing, Elsevier, vol. 24(4), pages 388-406, July.
- Davidsson, Per & Lindmark, Leif & Olofsson, Christer, 1998. "The Extent of Overestimation of Small Firm Job Creation--An Empirical Examination of the Regression Bias," Small Business Economics, Springer, vol. 11(1), pages 87-100, August.
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
- Chandler, Gaylen N. & McKelvie, Alexander & Davidsson, Per, 2009. "Asset specificity and behavioral uncertainty as moderators of the sales growth -- Employment growth relationship in emerging ventures," Journal of Business Venturing, Elsevier, vol. 24(4), pages 373-387, July.
- repec:adr:anecst:y:1996:i:41-42 is not listed on IDEAS
- Macpherson, Allan & Holt, Robin, 2007. "Knowledge, learning and small firm growth: A systematic review of the evidence," Research Policy, Elsevier, vol. 36(2), pages 172-192, March.
- Eliasson, Gunnar, 1996. "Spillovers, Integrated Production and the Theory of the Firm," Journal of Evolutionary Economics, Springer, vol. 6(2), pages 125-40, May.
- Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
- repec:hal:journl:hal-00633924 is not listed on IDEAS
- Russell W. Coff, 2003. "The emergent knowledge-based theory of competitive advantage: an evolutionary approach to integrating economics and management," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(4), pages 245-251.
When requesting a correction, please mention this item's handle: RePEc:hhs:ratioi:0205. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martin Korpi)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.