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Processes of firm growth and diversification: theory and evidence

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  • 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 and Technology Policy Research, University of Sussex.
  • Handle: RePEc:sru:ssewps:2013-11
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    References listed on IDEAS

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    Cited by:

    1. Nanditha Mathew, 2017. "Drivers of firm growth: micro-evidence from Indian manufacturing," Journal of Evolutionary Economics, Springer, vol. 27(3), pages 585-611, July.
    2. Alex Coad & Kristian Nielsen & Bram Timmermans, 2017. "My first employee: an empirical investigation," Small Business Economics, Springer, vol. 48(1), pages 25-45, January.
    3. 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.
    4. David Audretsch & Alex Coad & Agustí Segarra, 2014. "Firm growth and innovation," Small Business Economics, Springer, vol. 43(4), pages 743-749, December.

    More about this item

    Keywords

    Diversification; firm growth; Penrose; Machine tools; Growth process;

    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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