Abstract
Using a longitudinal dataset on a set of firms established, continuing, and closing over the period of 2002–2007 in France, we explore how a young firm’s financial policy and product market strategy may affect its growth path, as measured by employment growth. Financial decisions affect operational decisions. The aggressiveness of the firm is a means to obtain additional liquidities through higher sales levels, which then alleviates financial constraints allowing for additional operational spending. The “risk shifting” due to limited liability may also lead an entrepreneur to behave in a more aggressive manner and to promote a growth strategy. Our findings show that a small subset of new firms in France, exhibiting particular operational and financial patterns, has been at the origin of roughly 50 % of jobs created by the cohort within a 6 year period. We also find that certain entrepreneurial behaviors on the part of the founder/s are favorable for survivor firms to belong to the class of high-growth firms existing at the end of the observation.
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Notes
- 1.
We confirmed that the limited liability status has a strong explanation for the total variance of the different classes of growth (cf. infra). Thus, retaining only the limited liability status ensures a more homogenized population as regards growth.
- 2.
We select firms that have invested to follow the theoretical models.
- 3.
Except for classical duties that may be subcontracted like accounting, business administration, transport etc.
- 4.
The odds of belonging to the class of AG firms at this level of aggressiveness is 39 % of the odds of an enterprise that has a level EB0. It means that the odds of belonging to AG firms when EB0 is 2.56 times (1/0.39) more than belonging to the group of AG firms when EB level is 4.
- 5.
We acknowledge the importance of marketing and organizational innovations (for example, low cost air transport, models permanently renewed -ZARA-, public transportation -Vélib). The performance of a company in innovation is not defined by its number of patents. According to the European Commission 36 % of patents are not used.
- 6.
The methodology does not retain only young firms but firms that have a turnover between 10 million and 300 million euros and have registered a growth of their turnover of at least 4 times more than the average growth in their branch of activity since 2001. 2000 firms have been identified, among them young firms (less than 15 years) have a higher growth rate.
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Appendices
Annex 1: Classes of Growth
Considering that it is easier to register a high growth firm, if the initial size is low, we correct the rate of growth according to the initial size of the firm. The correction is the following: for the category of high growth firms (HG), the rate of growth must be superior or equal to one, if the initial size of the labor force is 5 or more employees, that is to say that the firm has to at least double its number of employees. If the initial size is 4 employees, the rate of growth must be superior or equal to 1.25 (from 4 employees to 9, at least). If the initial size is 3 employees, the rate of growth must be superior or equal to 1.33 (from 3 employees to 7, at least). If the initial size is 2 employees, the rate of growth must be superior or equal to 1.5 (from 2 employees to 5, at least). If the initial size is 1 employee, the rate of growth must be superior or equal to 2 (from 1 employee to 3, at least). These growth rates can be translated into compounded annual growth rates: 1–3 is equivalent to + 24.7 % per year, 2–5 is equivalent to + 20.11 % per year, 3–7 is equivalent to + 18.46 % per year, 4–9 is equivalent to + 17.6 % per year and finally up to 5 and more to double the initial size is equivalent to an annual growth of 14.87 % per year.
Annex 2: Control Variables
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Bonnet, J., Le Pape, N., Nelson, T. (2016). The Route to High Growth: Patterns of Financial and Operational Decisions for New Firms in France. In: Bögenhold, D., Bonnet, J., Dejardin, M., Garcia Pérez de Lema, D. (eds) Contemporary Entrepreneurship. Springer, Cham. https://doi.org/10.1007/978-3-319-28134-6_6
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