investment financing decisions and tax policy mists have analyzed the effects of taxes on capital spending most studies assume that firms respond to prices set in centralized securities markets such as market interest rates of tobin s q and firms undertake all profitable investment projects firms choose the mix or finance among internal funds debt and new equity independently the availability of finance does not limit investment the implications for tax policy are clear the marginal tax rate on returns from a new project matters for investment not the firm s average tax burden on returns from its investments in place for firms that face imperfect markets for

defence procurement theory and uk policy since the early 1980s competition as a means of obtaining best value for money has dominated uk defence procurement policy this paper describes the uk defense equipment market and the procurement problem there are sections on the economic theory of procurement contracting regulation and competition the conclusion evaluates uk defence procurement policy and assesses some of the policy issues for the 1990s copyright 1996 by oxford university press

financial factors and investment in belgium france germany and the united kingdom a comparison using company panel data we construct company panel data sets for manufacturing firms in belgium france germany and the united kingdom covering the period 1978 1989 these data sets are used to estimate empirical investment equations and to investigate the role played by financial factors in each country a robust finding is that cash flow and profits terms appear to be both statistically and quantitatively more significant in the united kingdom than in the three continental european countries this is consistent with the suggestion that financial constraints on investment may be relatively severe in the more market oriented u k financial system

founder backgrounds and the evolution of firm size to what extent are firm size differences influenced by entrepreneurs pre founding experience and do these differences persist over time we analyze these questions using a novel data set assembled for australian and new zealand wine producers on their heritage and sizes at various ages our findings indicate that on average firms founded by individuals with prior wine industry experience are larger initially and remain larger for at least the next 20 years using additional data on professional backgrounds export scope and the size of the firms at which experienced founders previously worked we explore alternative mechanisms that could have generated these persistent size differences copyright 2011 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

empirical patterns of firm growth and r d investment a quality ladder model interpretation we present a partial equilibrium model of endogenous firm growth with r d investment and stochastic innovation as the engines of growth drawing on the quality ladder models in the macro growth literature and the literature on patent races and the discrete choice models of product differentiation the model fits a number of empirical patterns well including i a skewed size distribution of firms with persistent differences in firm sizes ii firm growth independent of firm size as stated in the so called gibrat s law and iii r d investment proportional to sales

corporate growth and industrial structures some evidence from the italian manufacturing industry this work analyses the properties of corporate growth in a large longitudinal sample of italian manufacturing firms in particular it focuses on the statistical properties of growth rates and on the influence of proxies for relative efficiency upon relative growth in line with previous work the emergence of fat tails in growth rate distributions and the idiosyncratic nature of autocorrelation coefficients confirm the existence of a structure in the growth process richer than the one normally assumed by the gibrat law hypothesis and suggest the presence of firm specific drivers of growth at the same time there is a remarkable puzzle concerning the absence of any negative relationship between size and growth variance and only weak influences of relative efficiencies upon growth dynamics

one or more growth processes evidence from new italian firms 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

the cost of natural capital consumption accounting for a sustainable world economy abstract the system for integrated environmental and economic accounting seea has been criticized in this journal for ignoring the benefits of ecosystem services for human well being this paper argues that extended national accounts should not attempt measuring economic welfare rather they could and should assess the environmental sustainability of economic activity as the cost of natural capital consumption the global application of seea concepts and methods demonstrates the feasibility of international green accounting for the world economy sustainability costs run to about 3 trillion us or 6 of world gdp large variations at national and regional levels suggest that conventional economic indicators may significantly overstate economic progress in some parts of the world data gaps and lack of data comparability affect these first estimates national and international statistical services should be more aggressive in greening the national accounts more prudent and more sustainable economic policies might be the result

is the growth of small firms constrained by internal finance this paper examines the long standing theory that the growth of small firms is often constrained by the quantity of internal finance under plausible assumptions when financing constraints are binding an additional dollar of internal finance should generate slightly more than an additional dollar of growth in assets this quantitative prediction should not hold for the relatively small number of firms which access external equity we test these predictions with a panel of more than 1 600 small firms and find that the growth of most firms is constrained by internal finance our results have implications for several different research literatures including models of firm growth

the revival of communism or the effect of institutions the 1993 polish parliamentary elections in several eastern european countries the breakdown of communism in 1989 was followed by a surprising return to power of post communist parties yet some electoral victories of post communists look puzzling when contrasted with a small size of a shift in voters preferences that has led to them such is the case of the 1993 polish parliamentary elections using partition function form games and results of simulated elections we estimate the impact of three factors that were blamed in addition to the shift to the left in voters preferences for the 1993 victory of the post communists in poland we show that the shift to the left was insufficient to assure post communists an electoral victory and that this victory would not have happened under the old electoral law or under a unified coalition of the right our results show the high sensitivity of emerging democracies to the details of their institutional backbones

sme credit constraints in asia s rising economic star fresh empirical evidence from vietnam this study provides a fresh look at the sme sector s economic backbone vis a vis credit constraint dichotomy in vietnam asia s rising economic star the study uses data from the survey of manufactu

a time to grow and a time to die growth and mortality of credit unions in new york city 1914 1990 one vision of organizational evolution suggests that old and large organizations become increasingly dominant over their environment a second suggests that as organizations age they become less able to respond to new challenges in this article the authors investigate which of these visions best characterizes the evolution of state chartered credit unions in new york city from 1914 through 1990 by analyzing the effects of organizational age size and population density on rates of organizational failure and growth the authors find evidence that old and small institutions are more likely to fail while young and small organizations have the highest growth rates

asymmetric information financing constraints and investment the results of a number of theoretical papers lead to the hypothesis that financial variables affect capital sp ending because of asymmetric information in capital markets the auth ors review the relevant theory and test this hypothesis with a large sample of firm data the results show that financial variables such a s cash flow and interest expense add significant explanatory power to investment equations based on dale jorgenson s neoclassical model w ith a capm specification for the firm s cost of capital and a sales accelerator model the analysis therefore links recent theoretical work on capital markets to long standing empirical debates in the inv estment literature copyright 1987 by mit press

the impact of classes of innovators on technology financial fragility and economic growth in this article we study innovation processes and technological change in an agent based model by including a behavioral switching among heterogeneous innovative firms the model is able to replicate via simulations well known industrial dynamic and growth type stylized facts the main original element of the model is that firms are allowed to endogenously change among three different classes namely single innovators collaborative innovators and imitators moreover our analysis focuses on the impact of these three innovation categories on micro meso and macro aggregates we find that collaborative companies are those having the highest positive impact on the economic system furthermore we have paid particular attention to the role of credit market in promoting smart growth for this purpose we analyze the role of banks as sources of external funds for innovative entrepreneurs our results suggest a trade off between short term profit maximization and long term efficiency which prevents banks to foster investment in r d and technological progress the model is then used to study the effect that different innovation policies have on macroeconomic performance

why are distributions of firm growth rates tent shaped abstract recent empirical analyses on different datasets have revealed a common exponential behavior in the shape of the probability density of the corporate growth rates we present new evidence on this topic from the italian manufacturing industry and propose a very simple mechanism that under rather general assumptions provides a robust explanation for the observed regularities

growth processes of high growth firms as a four dimensional chicken and egg this article investigates whether high growth firms grow in different ways from other firms specifically we analyze how firms grow along several dimensions growth of sales employment assets and operating profits using structural vector autoregressions causal relations are identified by using information contained in the non gaussian growth rate distributions for most firms the growth process starts with employment growth which is then followed by sales growth then growth of operating profits and finally growth of assets in contrast high growth firms put more emphasis on growth of operating profits driving other dimensions of growth with employment growth occurring at the end

when is gibrat s law a law the purpose of this article is to investigate if the industry context matters for whether gibrat s law is rejected or not using a dataset that consists of all limited firms in five digit nace industries in sweden during 1998 2004 the results reject gibrat s law on an aggregate level since small firms grow faster than large firms however gibrat s law is confirmed about as often as it is rejected when industry specific regressions are estimated it is also found that the industry context e g minimum efficient scale market concentration rate and number of young firms in the industry matters for whether gibrat s law is rejected or not

do liquidity constraints matter in explaining firm size and growth some evidence from the italian manufacturing industry the paper investigates whether liquidity constraints affect firm size and growth dynamics using a large longitudinal sample of italian manufacturing firms we run standard panel data gibrat regressions suitably expanded to take into account liquidity constraints proxied by cash flow scaled by firm sales moreover we characterize the statistical properties of fi rms size growth age and scaled cashflow distributions pooled data show that i liquidity constraints engender a negative statistically significant effect on growth once one controls for size ii smaller firms grow more and experience more volatile growth patterns after controlling for liquidity constraints iii the stronger liquidity constraints the more size negatively affects firm growth we find that pooled size distributions depart from log normality and growth rates are well approximated by fat tailed tent shaped laplace densities we also study the evolution of growth size distributions over time our exercises suggest that the strong negative impact of liquidity constraints on firm growth which was present in the pooled sample becomes ambiguous when one disaggregates across years finally firms who were young and strongly liquidity constrained at the beginning of the sample period grew persistently more than those who were old and weakly liquidity constrained

innovation and corporate growth in the evolution of the drug industry abstract this work studies the processes of growth of the worlds top 150 pharmaceutical firms on the grounds of an original database which also allows disaggregate analysis at the level of single therapeutical classes and chemical entities our findings show that the industry whose long term evolution is driven by innovation imitation and permanent creation of new markets displays i fat tails in the distribution of growth shocks present at all levels of aggregation with relatively rare big spurs of growth ii a significant autocorrelation of growth rates iii a fall of variance of growth rates with size entirely dependent on corporate diversification patterns in turn plausibly shaped by the competence scope of each firm and iv different lifecycles of diverse types of products and persistent forms of heterogeneity across firms in terms of innovative output which however do not not seem to affect comparative growth performances

long lasting bank relationships and growth of firms a puzzling but consistent result in the empirical literature on banking is that firms with close bank ties do not grow faster than bank independent firms in this paper we reconsider the link between relationship lending and firm growth distinguishing firms by size and expansion contraction conditions the idea is that the beneficial effects of relationship lending on information asymmetries can be compensated by other negative capture risk and externality effects which make relational banks reluctant to support long term growth projects of client firms and that the strength of these compensating effects varies with firm size and health status we explore the influence of long lasting bank relationships on employment and asset growth of a large sample of italian firms the main finding is that relationship lending hampers the efforts of small firms to increase their size while it mitigates the negative growth of troubled medium large enterprises

optimal lending contracts and firm dynamics we develop a general model of lending in the presence of endogenous borrowing constraints borrowing constraints arise because borrowers face limited liability and debt repayment cannot be perfectly enforced in the model the dynamics of debt are closely linked with the dynamics of borrowing constraints in fact borrowing constraints must satisfy a dynamic consistency requirement the value of outstanding debt restricts current access to short term capital but is itself determined by future access to credit this dynamic consistency is not guaranteed in models of exogenous borrowing constraints where the ability to raise short term capital is limited by some prespecified function of debt we characterize the optimal default free contract which minimizes borrowing constraints at all histories and derive implications for firm growth survival leverage and debt maturity the model is qualitatively consistent with stylized facts on the growth and survival of firms comparative statics with respect to technology and default constraints are derived borrowing constraints are an important determinant of firm growth and survival 1 such constraints may arise in connection to the financing of investment opportunities faced by firms or temporary liquidity needs such as those required to survive a recession this paper develops a theory of endogenous borrowing constraints and studies its implications for firm dynamics in our model debt is constrained by the firm s limited liability and option to default a lending contract specifies an initial loan size future financing and a repayment schedule the choice of these variables in turn determines future growth the firm s future borrowing capacity and its ability and willingness to repay hence borrowing constraints and firm dynamics are jointly determined we study this dynamic design problem our model builds on thomas and worral s 1994 model of foreign direct investment at time zero a risk neutral borrower firm or entrepreneur has a project which requires a fixed initial set up cost every period the project yields revenues that increase with the amount of 1 there is considerable evidence suggesting that financing constraints are important determinants of firm dynamics gertler and gilchrist 1994 argue that liquidity constraints may explain why small manufacturing firms respond more to a tightening of monetary policy than do larger manufacturing firms perez quiros and timmermann 2000 show that in recessions smaller firms are more sensitive to the worsening of credit market conditions as measured by higher interest rates and default premia evans and jovanovic 1989 show that the liquidity constraints are essential in the decision to become an entrepreneur fazzari hubbard and petersen 1988 among others view financial constraints as an explanation for the dynamic behaviour of aggregate investment and cabral and mata 1996 are able to fit reasonably well the size distribution of portuguese manufacturing firms by estimating a simple model of financing constraints for surveys see hubbard 1998 and stein 2003

reconciling quantile autoregressions of firm size and variance size scaling the aim of this paper is to understand what economic mechanisms may cause the law of proportionate effect to break down for fast growing and shrinking firms recent evidence has highlighted that the first order coefficients of quantile auto regression of firm size decline across quantiles our theoretical results show that negative variance size scaling is sufficient to yield a decline in quantile auto regression coefficients if firm log size is laplace distributed conditional on size one period ahead however it is sufficient only for declining auto regression coefficients for fast growing firms under asymmetric laplace conditional log size if skewness is decreasing with size in other words if the growth of large firms is less dispersed and more left skewed size is a disadvantage for the growth of fast growers but not necessarily an advantage for fast decliners thus size related determinants of negative growth skewness such as diseconomies of growth market power and managerial attention issues impact on how the lpe is violated using data on dutch manufacturing companies from the business register of enterprises observed between 1994 and 2004 our empirical estimates of quantile regression models confirm the evidence of declining quantile regression coefficients for small medium firms 20 199 employees mainly in the right most quantiles and for the same subsample we find that growth rates variance and skewness are decreasing with size the theoretical propositions of the paper are thus corroborated

evidence on the role of cash flow for investment abstract recent work in macroeconomics argues that imperfections in capital markets may lead to business cycle fluctuations by propagating relatively modest shocks evidence for such a mechanism also known as the financial accelerator consists largely of firm level studies showing that cash flow is an important predictor of investment but this evidence is often viewed with skepticism because cash flow is also a good indicator of investment opportunities in this paper we develop a framework for estimating the extent to which the predictive power of cash flow can be attributed to its role as a fundamental versus its role in alleviating credit frictions for firms with access to commercial paper and bond markets we find that the perfect capital markets model of investment can fully account for the role of cash flow for firms with only limited access to capital markets as indicated by lack of participation in public debt markets however investment appears to be excessively sensitive to fluctuations in cash flow these results thus clarify the role of cash flow in investment equations and provide support for the existence of a financial accelerator

corporate structure liquidity and investment evidence from japanese industrial groups this paper presents evidence suggesting that information and incentive problems in the capital market affect investment we come to this conclusion by examining two sets of japanese firms the first set has close financial ties to large japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm the second set of firms has weaker links to a main bank and presumably faces greater problems raising capital investment is more sensitive to liquidity for the second set of firms than for the first set the analysis also highlights the role of financial intermediaries in the investment process

does firm size matter evidence on the impact of liquidity constraints on firm investment behavior in germany abstract this paper examines the link between liquidity constraints and investment behavior for german firms of different sizes from 1970 to 1986 results indicate that medium sized firms appear to be more liquidity constrained in their investment behavior than either the smallest or largest firms in the study suggesting that the unique german infrastructure designed to assist the small firm has indeed succeeded in alleviating to some degree such liquidity constraints findings also support the hypothesis that the emerging competition and internationalism which characterized the german financial markets in the 1980s have been improving access to capital for some groups of firms

sunk costs firm size and firm growth for several decades the conventional wisdom has been that expected firm growth rates are independent of firm size a property known as gibrat s law however recent empirical work has found a negative relation between firm growth and firm size this paper provides a theoretical explanation for this negative relation in a model of new firm growth where capacity and technology choices involve some degree of sunkness additional empirical implications of the theory of sunk costs are also developed these relate to profit rates tobin s q exit rates degree of sunkness of capacity costs as well as size and growth rates copyright 1995 by blackwell publishing ltd

financial constraints and firm dynamics this study analyzes the effect of financial constraints fcs on firm dynamics we measure fcs with an official credit rating which captures availability and cost of external resources we find that fcs undermine average firm growth induce anti correlation in growth patterns and reduce the dependence of growth volatility on size fcs are also associated with higher volatility and asymmetries in growth shock distributions preventing young fast growing firms especially from seizing attractive growth opportunities and further deteriorating the growth prospects of already slow growing firms particularly if old the sub diffusive nature of the growth process of constrained firms is compatible with the distinctive properties of their size distribution