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The Determinants of Growth for Small and Medium Sized Firms. The Role of the Availability of External Finance

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Abstract

We present an empirical analysis of the determinants of growth for a sample of Italian small and medium sized firms. We show that, when investigating a sample which includes firms between 10 and 50 employees and a set of variables larger than those usually considered in the literature, growth – net of industry characteristics and ex ante market power – turns out to be significantly affected not only by size and age, but also by state subsidies, export capacity and credit rationing. By adopting a multivariate approach we also show that these findings are confirmed after controlling for heteroskedasticity, survivorship bias and serial correlation. Our results suggest that the hypothesis of independence of firm growth from the initial size and other factors (usually referred to as Gibrat's law in the literature) is not rejected for large firms, while it does not hold for small and medium sized firms under financial constraints in a "bank-oriented" financial system in which access to external finance is difficult.

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Authors and Affiliations

  1. Dipartimento di Economia e Istituzioni, Università Tor Vergata, Facoltà di Economia, 00133, Roma, Italy

    Leonardo Becchetti

  2. Fondazione CaRiSal, Corso Garibaldi 194, 84100, Salerno

    Giovanni Trovato

Authors
  1. Leonardo Becchetti
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  2. Giovanni Trovato
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Becchetti, L., Trovato, G. The Determinants of Growth for Small and Medium Sized Firms. The Role of the Availability of External Finance. Small Business Economics 19, 291–306 (2002). https://doi.org/10.1023/A:1019678429111

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