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Persistent high-growth firms in China’s manufacturing

Abstract

This article explores the association between persistence of high-growth and crucial dimensions of firm structure and performance (productivity, profits, investment patterns, innovation, and financial structures) to shed light on what makes a persistent high-growth firm. We employ a multidimensional definition of a high-growth firm that simultaneously accounts for growth of sales and employment, and design an empirical strategy that seeks to capture the “long-run” ability of high-growth firms to replicate their high-growth performance over time. Exploiting a large panel covering the period of the China’s miracle, we find that none of the considered firm attributes stands out as distinctive feature of persistent high-growth. This finding casts doubts on the long-run contribution of high-growth firms, in turn challenging the long-run effectiveness of policies supporting the creation and expansion of such firms.

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Notes

  1. In 2003, the classification system was revised: some sectors were further disaggregated, while others were merged together, but consistency over time is ensured by adopting the harmonized classification proposed in Brandt et al. (2012).

  2. Essentially, we just dropped few firms with negative values in output, sales, value added, fixed assets, and cost of labor.

  3. We discard the first year, 1998, in order to have periods of the same length. The normalization implicitly removes sector-specific common trends, such as inflation and business cycle effects in sectoral demand.

  4. Another alternative sometimes suggested in the literature on persistence of economic performance (e.g., in innovation studies) would have been to define HG status on a yearly basis, and then employ duration analysis to elicit the influence of focal firm characteristics on the length of the spells of HG growth status, over 1, 2, and more years. However, as expected given the well-known erratic nature of growth processes, we verified that in our data about 95% of all yearly HG events do not last more than 3 years, and actually 65% of them last just 1 year. We thank an anonymous referee for suggesting to clarify this point.

  5. Gross margins are essentially equivalent to an EBIDTA index, taking the difference between value added and cost of labor (total wages plus social security).

  6. “New products” are defined, according to NBS, as products adopting new technology and/or new design, or products that have been significantly improved over existing ones with respect to their structure, materials and/ or process techniques. Hence, comparing with international standards in innovation surveys as defined by the Oslo manual, “new products” in our data are new to the enterprise, but not necessarily new to the market.

  7. According to Chinese accounting rule, interest expenses is a net measure, which equals gross interest expenses minus interest revenues, and can thus take negative values.

  8. There are five types of registration capital in the NBS data: state, collective, legal person, individual, Hong-Kong Macao and Taiwan, and foreign. “State-control” indicates both State-absolute-control, i.e., the State capital share is greater than or equal to 50%, and State-relative-control, i.e., State capital share is less than 50% but it is greater than the other shareholders or the relative State-controlling status is regulated by the contract.

  9. Notice that export status changes more often than ownership and this is the reason why we define the two dummies in two different ways.

  10. More precisely, the East region includes Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan. The Middle region includes Shanxi, Anhui, Jiangxi, Henan, Hubei, and Hunan. The West region includes Inner Mongolia, Guangxi, Chongqiong, Sichuan, Guizhou, Yunnan, Tibet, Shannxi, Gansu, Qinghai, Ningxia, and Xinjiang. The Northeast region includes Liaoning, Jilin, and Heilongjiang.

  11. The data cannot be matched with other data sources, due to confidentiality and restricted access, so we cannot exploit other sources of information to include further region-specific or sector-specific characteristics.

  12. This is confirmed by looking at kernel densities of all variables, for both HG and other firms. Results are not reported, but available upon request.

  13. Notice that, given the data span 10 years, young firms include only firms entering the sample exactly during the years covered in the data.

  14. This size categorization method was adopted by the Chinese State Economic and Trade Commission in 2011.

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Acknowledgments

We thank Giovanni Dosi and Jiasu Lei for helping with the study and giving insightful suggestions. We thank participants to the 10th EMAEE Conference, Strasbourg, May–June 2017, and to the International Workshop & Small Business Economics Special Issue on Entrepreneurship in China, Beijing, October 2016. We thank Zoltan Acs, Haifeng Qian, Jiangyong Lu, Canfei He, and three anonymous referees for their insightful suggestions. We gratefully acknowledge the support by the European Union Horizon 2020 Research and Innovation program under grant agreement No. 649186 - ISIGrowth. Daniele Moschella received financial support by the Italian Ministry of Education, University, and Research under the SIR Programme (project code RBSI14JAFW).

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Correspondence to Xiaodan Yu.

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Moschella, D., Tamagni, F. & Yu, X. Persistent high-growth firms in China’s manufacturing. Small Bus Econ 52, 573–594 (2019). https://doi.org/10.1007/s11187-017-9973-4

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  • DOI: https://doi.org/10.1007/s11187-017-9973-4

Keywords

  • Entrepreneurship
  • High-growth firms
  • Persistent high-growth firms
  • China

JEL Classification

  • D22
  • D24
  • L26