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One or more growth processes? Evidence from new Italian firms

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Abstract

The paper proposes a descriptive model of firm growth which assumes that learning processes are conditional on existing competencies of the firm and its founders. We suggest the idea that firms who do not grow under all realizations of potentially profitable opportunities can be considered as zero-learning. In order to explain why some firms are zero-learning and how these are different from growing ones, we put forward and discuss the hypothesis that both start-up size and founders’ pre-entry history affect the firm’s ability to adjust to market. Using a sample of 3,905 Italian firms born in 1999 and 2000, we find that individual competencies influence start-up size, but not directly growth. We also find a significant nonlinear relationship between start-up size and growth, implying that firms which were born smaller than a given size grow significantly less. The results support the hypothesis that multiple and heterogeneous growth processes coexist and that the growth process of microfirms below a given organizational threshold may be structurally different, in the long run, from that of firms starting up above that threshold.

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Notes

  1. Unioncamere carried out several waves of surveys. However in this work we use the surveys on firms born in 1999 and 2000 only, since the questionnaires, which have been partially modified across waves, better suit our research interests.

  2. The cleaning procedure followed the EUROSTAT guidelines, which recommend the classification of a new firm registration as “true” whenever it is not possible to find an existing firm sharing with the new one two features out of: (i) location, (ii) sector of activity, and (iii) team of founders. The share of false entries in each cohort of new Italian firms in period 1998–2000 was, on average, 40% (Osservatorio Unioncamere sulla demografia delle imprese 2003, p. 10).

  3. The number of observations drawn from each stratum was determined as the average between proportional and optimal sampling.

  4. The refusal rate was about 11% in the two surveys. This unusually high response rate may be explained by considering the institutional role of the Chambers of Commerce in the business sector.

  5. Firms that were classified as nonsurviving by the interviewer (on the basis of firm’s statements) do not need to be formally deleted from the Businesses Register. Indeed, the definition does not refer to the administrative status of the firm. Nonsurviving firms are those: (i) which definitively stopped their activity (11.58%), (ii) whose activity is temporarily “suspended” (1.54%), (iii) that have not started their activity yet (0.79%), and (iv) other (0.18%).

  6. Unfortunately, we do not have information on turnover or value added. Indeed, according to Italian law, firms with the legal form of “ditta individuale” do not need to complete a formal public balance sheet. The large majority of firms in the sample fall into this category. As a result, we were unable to match our data with public data on balance sheets to obtain measures of firm performance other than workforce growth.

  7. On the same grounds, we acknowledge the ongoing debate about possible distortions in firm growth process due to Italian employment protection law (EPL), which introduced more severe rules for dismissing employees in firms having more than 15 employees. Recent empirical evidence shows that possible “threshold effects” around 15 employees in the size and growth distribution of Italian firms is quantitatively negligible (Schivardi and Torrini 2004; Boeri and Jimeno, 2005).

  8. According to official statistics, construction is the only sector where an uncommonly high employment growth rate took place during the observation period, thus indicating a possible regularization effect (ISTAT 2002, ISTAT 2003a). We checked the robustness of all empirical results with the exclusion from the sample of the construction sector.

  9. In our opinion, the selected criterion is valid in distinguishing firms that show significant growth over the sample period from all the others, both in terms of the univariate distribution of absolute and relative growth, and consistent with previous empirical literature (see, as examples, Cooper et al. 1994; Bruderl and Preisendorfer 2000). We adopted several thresholds to test the robustness of results. No significant departures from the results showed in this section have been observed.

  10. In order to remove the problems of biased estimates and artificially small standard errors that would arise whenever the stratification design is not included in the analysis we adopt a pseudo-maximum-likelihood estimation. This accounts for complex survey designs, adopting the linearization method for deriving standard errors. The linearization method uses a first-order Taylor series to approximate standard errors, which are nonlinear functions of the population parameters (Levy and Lemeshow 1999).

  11. The estimation has been run after deleting from the sample the observations reporting missing values in the explanatory variables, thus reducing the number of usable cases to 3,075.

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Authors and Affiliations

  1. School of Engineering, University of Pisa, via Diotisalvi, 2, Pisa, 56126, Italy

    A. Bonaccorsi

  2. Laboratory of Economics and Management, Sant’ Anna School of Advanced Studies, Piazza dei Martiri della Libertà, 33, Pisa, 56127, Italy

    S. Giannangeli

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  1. A. Bonaccorsi
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  2. S. Giannangeli
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Correspondence to S. Giannangeli.

Appendix

Appendix

Table A1 Universe of truly new firms born in the year 1999
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Table A2 Selected sample of firms born in 1999
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Table A3 Universe of truly new firms born in the year 2000
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Table A4 Selected sample of firms born in 1999
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Table A5 New and surviving firms by sector
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Table A6 Distribution of surviving firms in different size and capital classes at start-up
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Table A7 Descriptive statistics and correlation matrix among explanatory variables
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Bonaccorsi, A., Giannangeli, S. One or more growth processes? Evidence from new Italian firms. Small Bus Econ 35, 137–152 (2010). https://doi.org/10.1007/s11187-008-9131-0

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