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Processes of firm growth and diversification: theory and evidence

Author

Listed:
  • Alex Coad

    (SPRU, University of Sussex, UK)

  • Christina Guenther

    (WHU - Otto Beisheim school of Management, Germany)

Abstract

In this short research note we investigate the role of diversification in the firm growth process. We build on Penrose’s (1959) Theory of the Growth of the Firm to formulate hypotheses about growth of employment, assets, and sales in the years before, during and after a new product introduction. We exploit a new database from the German machine tool industry which boasts a detailed and meaningful definition of diversification. Our exploratory analyses indicate that diversification, in terms of product introductions, is preceded by employment growth. Moreover, we find support that diversification is positively associated with subsequent asset growth, but negatively associated with subsequent employment growth.

Suggested Citation

  • Alex Coad & Christina Guenther, 2013. "Processes of firm growth and diversification: theory and evidence," SPRU Working Paper Series 2013-11, SPRU - Science Policy Research Unit, University of Sussex Business School.
    • Handle: RePEc:sru:ssewps:2013-11
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    Cited by:

    1. Li, Yingbo & Wei, Yigang & Li, Yan & Lei, Zhen & Ceriani, Alessandra, 2022. "Connecting emerging industry and regional innovation system: Linkages, effect and paradigm in China," Technovation, Elsevier, vol. 111(C).
    2. Shuting Chen & Dengke Yu, 2022. "Exploring the impact of external collaboration on firm growth capability: the mediating roles of R&D efforts," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 9(1), pages 1-12, December.
    3. Alex Coad & Stjepan Srhoj, 2020. "Catching Gazelles with a Lasso: Big data techniques for the prediction of high-growth firms," Small Business Economics, Springer, vol. 55(3), pages 541-565, October.
    4. Hien Tran & Enrico Santarelli & Enrico Zaninotto, 2015. "Efficiency or bounded rationality? Drivers of firm diversification strategies in Vietnam," Journal of Evolutionary Economics, Springer, vol. 25(5), pages 983-1010, November.
    5. Yannis Caloghirou & Ioannis Giotopoulos & Alexandra Kontolaimou & Aggelos Tsakanikas, 2022. "Inside the black box of high-growth firms in a crisis-hit economy: corporate strategy, employee human capital and R&D capabilities," International Entrepreneurship and Management Journal, Springer, vol. 18(3), pages 1319-1345, September.
    6. Nuscheler, Daniela & Engelen, Andreas & Zahra, Shaker A., 2019. "The role of top management teams in transforming technology-based new ventures' product introductions into growth," Journal of Business Venturing, Elsevier, vol. 34(1), pages 122-140.
    7. Rachel Bocquet & Christian Le Bas & Caroline Mothe & Nicolas Poussing, 2017. "CSR, Innovation, and Firm Performance in Sluggish Growth Contexts: A Firm-Level Empirical Analysis," Journal of Business Ethics, Springer, vol. 146(1), pages 241-254, November.
    8. Inês Teixeira & Aurora Teixeira & Luís Santos, 2023. "R&D subsidies and Portuguese firms’ performance: A longitudinal firm-level study," GEE Papers 0173, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Jul 2023.
    9. Sermet Pekin & Aykut Sengul, 2024. "The Good, the Better and the Challenging:Insights into Predicting High-Growth Firms using Machine Learning," Working Papers 2413, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    10. Andrea M. Herrmann & Cornelia Storz & Lukas Held, 2022. "Whom do nascent ventures search for? Resource scarcity and linkage formation activities during new product development processes," Small Business Economics, Springer, vol. 58(1), pages 475-496, January.
    11. Ho-Chang Chae, 2024. "In search of gazelles: machine learning prediction for Korean high-growth firms," Small Business Economics, Springer, vol. 62(1), pages 243-284, January.
    12. Alex Coad & Kristian Nielsen & Bram Timmermans, 2017. "My first employee: an empirical investigation," Small Business Economics, Springer, vol. 48(1), pages 25-45, January.
    13. David Audretsch & Alex Coad & Agustí Segarra, 2014. "Firm growth and innovation," Small Business Economics, Springer, vol. 43(4), pages 743-749, December.
    14. Nanditha Mathew, 2017. "Drivers of firm growth: micro-evidence from Indian manufacturing," Journal of Evolutionary Economics, Springer, vol. 27(3), pages 585-611, July.
    15. Agnieszka Ma³kowska & Ma³gorzata Uhruska, 2022. "Factors affecting SMEs growth: the case of the real estate valuation service industry," Oeconomia Copernicana, Institute of Economic Research, vol. 13(1), pages 79-108, March.
    16. Torreggiani, Sofia & Andreoni, Antonio, 2023. "Rising to the challenge or perish? Chinese import penetration and its impact on growth dynamics of manufacturing firms in South Africa," Structural Change and Economic Dynamics, Elsevier, vol. 64(C), pages 199-212.
    17. Mona Parsaei & Davood Askarany & Mahtab Maleki & Ali Rahmani, 2024. "Risk Management in Product Diversification: The Role of Managerial Overconfidence in Cost Stickiness—Evidence from Iran," Risks, MDPI, vol. 12(10), pages 1-21, September.
    18. Carolin Decker & Christina Günther, 2017. "The impact of family ownership on innovation: evidence from the German machine tool industry," Small Business Economics, Springer, vol. 48(1), pages 199-212, January.

    More about this item

    Keywords

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    JEL classification:

    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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