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High and sustainable growth: persistence, volatility, and survival of high growth firms

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Abstract

In most developed countries, high growth firms (HGFs) are disproportionately responsible for net job creation, yet there is little information about how well such firms sustain their performance over time. Using GMM on a panel of 79,200 Romanian SMEs from 2000 to 2012, this paper evaluates the extent to which HGFs register stable and sustained growth over time, accounting for a variety of definitions for “high growth” that have been used in academic and policy literatures. Our results indicate that high growth SMEs are unable to maintain high growth rates for long, but do register lower volatility in growth rates and higher chances of survival. Identification of HGFs and results regarding growth volatility and persistence vary significantly with the specific definition of “high growth” used, as well as with the specific variable used to measure growth (e.g., revenue, employees, profit, productivity). Our findings have direct implications for growth policies and programs that depend on identifying HGFs.

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Notes

  1. Throughout the paper, “productivity” refers to labor productivity, measured as Revenue/Employees.

  2. The term “gazelle” has been predominantly used in recent literature to refer to young HGFs, less than 5 years old. We will make the distinction when necessary in order to avoid confusion.

  3. SC BORG Design SRL, website http://www.listafirme.ro.

  4. Percentage and log difference select the same firms, so we only report them once as the relative measure.

  5. OECD is a superset of Birch (it includes all Birch firms), and in the same time it is based on a total growth rate (at least 72% over the period), and not a yearly rate, thus being Type 2. Due to less restrictive selection rules, OECD HGFs are more numerous, reaching up to 12% in our sample. However, the standard OECD requires firms to have more than 10 employees, which would exclude 80% of our firms. We adapt it for the Employment indicator according to Clayton et al. (2013), by imposing an increase of at least eight employees over 4 years for the firms that have less than ten employees in the start year.

  6. We use four categories of sizes based on employment (1, 2–9, 10–19, 20–249 employees), and on revenue (4 quantiles of revenue), 2 categories of age (young (gazelles), ≤ 4 years, and old, > 4 years), and 4 industry types grouped according to NACE v2 (high and medium–high tech, medium–low and low tech, knowledge intensive (KI) services, less KI services; two industry groups are excluded and analyzed separately—wholesale and retail trade, and construction and utilities (electricity, gas, water, and waste management). Size is the number of employees, Age—the difference between current year and the reported founding year, and Industry—the NACE v2 2-digit code. Additionally, we use location as a control, a categorical variable for the eight development regions of Romania, as defined by the government: North-East, South-East, South, South-West, West, North-West, Center, Bucharest.

  7. We ran root-mean-square error (RMSE) regressions as a check.

  8. At the start of the period, in year 2000: 1st quantile: 0–$30k, mean $15k, median $14k; 2nd quantile: $30k–$90k, mean $56k, median $54k; 3rd quantile: $91k–$290, mean $168k, median $157k; 4th quantile: $291k–$240M, mean $1.6M, median $695k.

  9. 10% and 30% instead of 20% yearly growth for Birch, Top 1% and Top 10% instead of Top 5% for Type 2.

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Acknowledgements

Serban Mogos gratefully acknowledges financial support from the Portuguese Foundation for Science and Technology (FCT) in the form of a doctoral scholarship (Ref. SFRH/BD/51918/2012). The authors gratefully acknowledge support from FCT through the Carnegie Mellon|Portugal Program (project CMUP-ERI/TPE/0028/2013). We thank Daniel Armanios, Serguey Braguinsky, Zoltan Acs, and Harald Fadinger for useful comments.

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Authors and Affiliations

  1. Department of Engineering and Public Policy, Carnegie Mellon University, 5000 Forbes Ave, Pittsburgh, PA, 15213, USA

    Serban Mogos & Alex Davis

  2. CEG-IST, Instituto Superior Técnico, Universidade de Lisboa, Av. Rovisco Pais 1, 1049-001, Lisbon, Portugal

    Serban Mogos & Rui Baptista

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  1. Serban Mogos
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Correspondence to Rui Baptista.

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Mogos, S., Davis, A. & Baptista, R. High and sustainable growth: persistence, volatility, and survival of high growth firms. Eurasian Bus Rev 11, 135–161 (2021). https://doi.org/10.1007/s40821-020-00161-x

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