Abstract
In this paper, we study the post-entry patterns of survival and growth of firms established in Portuguese manufacturing in 1983. Our data suggest the existence of a highly turbulent economy, with a very large number of small firms being created, but a great proportion of new firms disappearing in the first years subsequent to their birth. Survivors, however, grow quite fast and we found that small firms grow faster than their larger counterparts. Moreover, we found that the growth decision of firms is affected by a firm specific component, which is also correlated with firm size. These two effects are oppositely signed and, therefore, estimates that fail to take this firm specific effect into account are likely to be strongly biased towards zero.
Similar content being viewed by others
References
Acs, Z. and D. Audretsch, 1989,Innovation and Small Firms, Cambridge, Mass.: MIT Press.
Audretsch, D. B., 1991, ‘New Firm Survival and the Technological Regime’,Review of Economics and Statistics 60(3), 441–450.
Audretsch D. B. and T. Mahmood, 1992, ‘Firm Selection and Industry Evolution: The Post-Entry Performance of New Firms’, Discussion Paper FS IV 92–7, Wissenschaftszentrum Berlin.
Amemiya, T., 1984, ‘Tobit Models: A Survey’,Journal of Econometrics 24, 3–61.
Baumol, W., 1958, ‘On the Theory of Oligopoly’,Economica 25, August, 187–198.
Baumol, W., 1959,Business Behavior, Value and Growth, New York: MacMillan.
Baumol, W., 1962, ‘On the Theory of Expansion of the Firms’,American Economic Review 52, 1078–1087.
Beesley, M. and R. Hamilton, 1984, ‘Small firms' Seedbed Role and the Concept of Turbulence’,Journal of Industrial Economics 33, 217–232.
Bourlakis, C., 1990, ‘Probability of Survival and Firm Growth in Greek Manufacturing Industries’,Paper presented at the 17th EARIE Conference, Lisbon.
Contini, B. and R. Revelli, 1989, ‘The Relationship between Firm Growth and Labor Demand’,Small Business Economics 1(4), 309–315.
Dunne, P. and A. Hughes, 1990, ‘Small Firms, Age, Growth and Survival in the, 1990's’,Paper presented at the 17th EARIE Conference, Lisbon.
Dunne, T., M. Roberts and L. Samuelson, 1989, ‘The Growth and Failure of U.S. Manufacturing Plants’,Quarterly Journal of Economics 104(4), 671–688.
Evans, D., 1987a, ‘Tests of Alternative Theories of Firm Growth’,Journal of Political Economy 95(4), 657–674.
Evans, D., 1987b, ‘The Relationship Between Firm Growth, Size, and Age — Estimates for 100 Manufacturing Industries’,Journal of Industrial Economics 35(4), 567–581.
Geroski, P., 1991,Market Dynamics and Entry, Oxford: Basil Blackwell.
Geroski, P. and J. Schwalbach (eds.), 1991,Entry and Market Contestability: An International Comparison, Oxford: Basil Blackwell.
Hall, B., 1987, ‘The Relationship Between Firm Size and Firm Growth in the United-States Manufacturing Sector’,Journal of Industrial Economics 35(4), 583–606.
Hausman, J. A., 1978, ‘Specification Tests in Econometrics’,Econometrica 46(6), 1251–1271.
Hay, D. and D. Morris, 1991,Industrial Economics and Organization, Oxford: Oxford University Press.
Huighen, R., A. Kleijweg and G. van Leeuwen, 1991, ‘The Relationship Between Firm Size and Firm Growth in Dutch Manufacturing Estimated on Panel Data’,Research Paper 9105, Research Institute for Small and Medium Sizes Business in the Netherlands.
Jovanovic, B., 1982, ‘Selection and Evolution of Industry’,Econometrica 50(2), 649–670.
Kumar, M., 1985, ‘Growth, Acquisition Activity and Firm Size — Evidence from the United Kingdom’,Journal of Industrial Economics 33(3), 327–338.
Loverman, G. and W. Sengenberger, 1991, ‘The Re-emergence of Small-Scale Production: An International Comparison’,Small Business Economics 3(1), 1–38.
Lucas, R. E., 1978, ‘On the Size Distribution of Business Firms’,Bell Journal of Economics 9(3), 508–523.
Maddala, G., 1988, ‘Limited Dependent Variable Models Using Panel Data’,Journal of Human Resources 23(3), 307–338.
Mahmood, T., 1992, ‘Does the Hazard Rate for New Plants Vary Between Low-and High-Tech Industries?’Small Business Economics 4(3), 201–209.
Mansfield, E., 1962, ‘Entry, Gibrat's Law, and the Growth of Firms’,American Economic Review 52(5), 1023–1051.
Marris, R., 1963, ‘A Model of the Managerial Enterprise’,Quarterly Journal of Economics 77(2), 185–209.
Mata, J. and P. Portugal, 1993, ‘The Effect of Demand and Technological Conditions on the Life Expectancy of New Firms’, in G. Mussati, A. Fumagalli and M. Vivarelli (eds.),Births and Start-Up of Small Firms, Dordrecht: Kluwer Academic Publishers.
Penrose, E., 1959,The Theory of the Growth of the Firm, Oxford: Basil Blackwell.
Phillips, B. and B. Kirchhoff, 1989, ‘Formation, Growth and Survival: Small Firm Dynamics in the U.S. Economy’,Small Business Economics 1(1), 65–74.
Prais, S., 1974, ‘A New Look at the Growth of Industrial Concentration’,Oxford Economic Papers 26(2), 273–288.
Hymer, S. and P. Pashighian, 1962, ‘Firms Size and Rate of Growth’,Journal of Political Economy 70(6), 556–569.
Segal, U. and A. Spivak, 1989, ‘Firm Size and Optimal Growth Rates’,European Economic Review 33(1), 159–168.
Singh, A. and G. Wittington, 1975, ‘The Size and Growth of Firms’,Review of Economic Studies 42(1), 15–26.
Storey, D. et al., 1987,The Performance of Small Firms: Profits, Jobs and Failures, London: Routledge.
Wagner, J., 1992, ‘Firm Size, Firm Growth, and Persistence of Chance: Testing Gibrat's Law with Establishment Data From Lower Saxony, 1978–1989’,Small Business Economics 4(3), 125–131.
White, H., 1980, ‘A Heteroskedastic-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity’,Econometrica 48, 817–838.
White, H., 1982, ‘Maximum Likelihood Estimation of Misspecified Models’,Econometrica 50(1), 1–25.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Mata, J. Firm growth during infancy. Small Bus Econ 6, 27–39 (1994). https://doi.org/10.1007/BF01066110
Accepted:
Issue Date:
DOI: https://doi.org/10.1007/BF01066110