getting big too fast strategic dynamics with increasing returns and bounded rationality neoclassical models of strategic behavior have yielded many insights into competitive behavior despite the fact that they often rely on a number of assumptions including instantaneous market clearing and perfect foresight that have been called into question by a broad range of research researchers generally argue that these assumptions are good enough to predict an industry s probable equilibria and that disequilibrium adjustments and bounded rationality have limited competitive implications here we focus on the case of strategy in the presence of increasing returns to highlight how relaxing these two assumptions can lead to outcomes quite different from those predicted by standard neoclassical models prior research suggests that in the presence of increasing returns tight appropriability and accommodating rivals in some circumstances early entrants can achieve sustained competitive advantage by pursuing get big fast gbf strategies rapidly expanding capacity and cutting prices to gain market share advantage and exploit positive feedbacks faster than their rivals using a simulation of the duopoly case we show that when the industry moves slowly compared to capacity adjustment delays boundedly rational firms find their way to the equilibria predicted by conventional models however when market dynamics are rapid relative to capacity adjustment forecasting errors lead to excess capacity overwhelming the advantage conferred by increasing returns our results highlight the risks of ignoring the role of disequilibrium dynamics and bounded rationality in shaping competitive outcomes and demonstrate how both can be incorporated into strategic analysis to form a dynamic behavioral game theory amenable to rigorous analysis

growth paths and survival chances an application of gambler s ruin theory this paper links new firm survival with growth with a focus on the patterns in firms growth paths we theorise a gambler s ruin framework by arguing that new firm performance is best modelled as a random walk process but that survival is nonrandom and depends primarily on the stock of accumulated resources a firm s resources are either there when the business begins or are generated by successful periods wins the empirical section tracks over six years the sales and survival non survival of 6247 uk start ups which all began trading in the same quarter of 2004 we do not find strong evidence in favour of a taxonomy of growth paths because we observe that every possible growth path seems to occur with roughly equal probability however we observe that growth paths influence subsequent survival controlling for lagged size we observe that longer lags of growth and even start up size have significant effects on survival

the gold standard perfectly integrated world markets or slow adjustment of prices and interest rates abstract we investigate the balance of payments adjustment mechanism for canada the usa and the uk during the gold standard era regardless of whether the data are stationary or non stationary the results do not support the assumption of perfectly integrated world markets the evidence is more consistent with the price specie flow mechanism with prices and interest rates adjusting over time to restore equilibrium in the balance of payments

persistence survival and growth a closer look at 20 years of fast growing firms in austria for survival persistence and growth hifs show a much higher persistence than hgfs the average growth rate after the high growth episode is quite modest for both hifs and hgfs policy implications of the ndings are discussed

are high growth firms one hit wonders evidence from sweden most firms do not grow and a small number of high growth firms seem to create most new jobs these firms have therefore received increasing attention among policymakers the question is whether high growth tends to persist we investigate this question using firm level data from sweden during 1997 2008 we find that high growth firms had declining growth rates in the previous 3 year period and their probability of repeating high growth rates was very low thus these are essentially one hit wonders and it is doubtful whether policymakers can improve economic outcomes by targeting them

variable risk preferences in new firm growth and survival we outline and test a decision making theory of new venture growth and survival building upon research in entrepreneurship and decision making under risk we hypothesize that entrepreneurs attention to survival and aspiration reference points changes based on venture age experience based learning size differences in decision complexity and performance decision domain examining a panel of 14 760 new ventures in the professional services sector our findings show how risk preferences change as a venture ages and increases in size this approach offers a more nuanced view of decision making under risk and provides a theoretical explanation for the common patterns of new ventures probability of exit and growth diminishing with age and size

an empirical investigation into the international real interest rate linkages linear dynamic stochastic processes are derived for the ex ante real interest rates from those followed by the ex post real rates under the identifying assumption of rational expectations the technique is used to study instantaneous and lagged effects of u s ex ante real rates on a number of oecd ex ante real rates the author finds significant contemporaneous correlations between ex ante real rates in the long run however real rates seem to be insulated

on low frequency estimates of long run relationships in macroeconomics abstract a number of recent studies have attempted to test propositions concerning long run economic relationships by means of frequency domain time series techniques that concentrate attention on low frequency comovements of variables the present paper emphasizes that many of these propositions involve expectational relationships that are not inherently related to specific frequencies or periodicities thus the association of low frequency time series test statistics with long run economic propositions is not generally warranted that such an association can be misleading is demonstrated by analysis of examples taken from notable papers by geweke lucas and summers

forecasting inflation using interest rate and time series models some international evidence it has been suggested that inflation forecasts derived from short term interest rates are as accurate as time series forecasts previous analyses of this notion have focused on u s data providing mixed results in this article the authors extend previous work by testing the hypothesis using data taken from the united states and five other countries using monthly eurocurrency rates and the consumer price index for the period 1967 86 their results indicate that time series forecasts of inflation have equal or lower forecast errors and have unbiased predictions more often than the interest rate based forecasts copyright 1990 by the university of chicago

money income and prices in the united kingdom 1870 1913 this paper examines certain aspects of the operation of the gold standard and its effects on the united kingdom in the period before world war i reduced form tests and estimates of output and money demand equations are presented the major conclusions are 1 prices and interest rates in the united kingdom can be represented as being determined independently of the money stock and output in the united kingdom and 2 evidence concerning lucas s version of the natural rate hypothesis indicates various inadequacies

whom do high growth firms hire we study employment and new hires among high growth firms hgfs in the swedish knowledge intensive sectors 1999 2002 using matched employer employee data we find that hgfs are more likely to emp

the relation between stock prices and inflationary expectations the international evidence this paper provides empirical evidence on the relation between stock returns and inflationary expectations for nine countries over the period 1971 80 the fisherian assumption that real returns are independent of inflationary expectations is soundly rejected for each major stock market of the world using interest rates as a proxy for expected inflation our data provide consistent support for the geske and roll model whose basic hypothesis is that stock price movements signal negative revisions in inflationary expectations finally a weak real interest rate effect was found for some of these countries

whom do new firms hire using the matched employer employee data set for denmark and information on the founders of new firms we analyze the hiring choices of all new firms that entered from 2003 to 2010 we develop a theoretical model in which the quality of a firm s employees determines its average cost a firm s productivity is based on its pre entry experience and persistent shocks and over time firms learn about their productivity the model predicts that more productive firms are larger and hire more talented employees which gives rise to various predictions about how pre entry experience firm growth rates and firm size influence the wages firms pay to their early hires we find that beginning with the time of entry larger firms consistently pay higher wages to their new hires these are firms with greater survival prospects at the time of entry based on the pre entry backgrounds of their founders and that grow at greater rates over time both of which are predictive of the wages paid to new hires from the time of entry onward our findings suggest workers are allocated to firms according to their abilities which can give rise to enduring firm capabilities

on the accuracy of time series interest rate and survey forecasts of inflation there has been much work examining and evaluating different methodologies in forecasting inflation for example fama 1975 1977 develops an interest rate model to predict the 1 monthahead rate of inflation using the cpi fama and gibbons 1982 1984 modify the interest rate model to account for a nonconstant real rate of interest and compare it to a univariate timeseries forecasting model and to the livingston forecasts carlson 1977a 1977b and others also analyze the consensus forecasts from the livingston survey pertaining to multiperiod forecasts of inflation pearce 1979 considered the livingston survey and time series forecasts our purpose in this paper is to investigate further the relative forecasting ability of three different methodologies in contrast to previous studies that have generally used the cpi to measure inflation our analysis uses the implicit gnp deflator this modification is motivated largely by the fact that calculations of the cpi inflat n rate often are distorted greatly by changes in relative prices e g blinder 1980 fischer 1981 this paper compares the accuracy of three different inflation forecasting procedures these include a univariate time series model an interest rate model based on the methodology of fama and gibbons and the median forecasts derived from the american statistical association national bureau of economic research survey the evidence presented is based on ex ante forecasts of quarterly inflation rates using the gnp deflator for the period 1970 11984 11 based on the evidence presented the general conclusion is that the survey forecasts provide the most accurate inflation forecasts

new firm survival new results using a hazard function a limitation of audretsch s 1991 study of new firm survival was the level of aggregation to industries this precluded linking establishment specific characteristics such as organizational structure and size to post entry performance the purpose of this paper is to relate the post entry performance of individual establishments not only to their technological and market structure environments but also to establishment specific characteristics we do this by estimating a hazard duration function for more than 12 000 individual establishments in u s manufacturing started in 1976 by tracking their subsequent performance over a ten year period we conclude that establishment specific characteristics which audretsch was not able to capture in his earlier study play an important role in shaping the exposure to risk confronting new establishments copyright 1995 by mit press

what happens to gazelles the importance of dynamic management strategy the starting point of this study is gibrat s law which is contrasted with strategic management this logic is subsequently applied to a group of remarkably dynamic high growth firms gazelles strategic management theory emphasises the importance of firms adjusting strategies in response to changes in the external environment in our study it is used to explain several key empirical findings using a novel british data set containing information on more than 100 gazelles these findings help explain 1 why gibrat s law of random firm growth processes does not generally hold 2 which strategy and environmental variables have a predictable influence on firm performance and 3 why routine application of best practice strategies is unlikely to foster firm growth in a changing economic environment in so doing this paper contributes to the large body of literature on small firm growth

the sources of the movements in interest rates the paper investigates the sources of interest rate movements in italy during the 1970s in that decade the country experienced the highest and most variable inflation rate among the industrial nations and was affected both by external shocks and by shocks to the labor and financial markets the paper shows that movements in inflationary expectations dominated the nominal interest rate variability the part of variability that was not explained by expected inflation was accounted for by unanticipated changes in the terms of trade by contrast domestic monetary and real disturbances did not have a sizeable impact on the variability

cross regime evidence of macroeconomic rationality rational expectations macromodels predict that the short run effects of monetary shocks on real output x should be negatively related across policy regimes to the variability of such shocks this paper presents cross regime tests of this and related propositions based on a sample of 47 countries the within regime estimates reveal a consistent pattern of positive short run real output effects with neutrality of money holding in the long run the cross regime tests show that x is negatively related to the variance of monetary shocks positively related to the variance of real output shocks negatively related to the variance of velocity shocks and unrelated to either the mean or variance of anticipated money growth

short term interest rates as predictors of inflation comment in this note i raise two questions regarding fama s results the first is whether similar tests based on an information set somewhat broader than the past history of consumer price inflation will support fama s findings the second is whether given fama s data and model his results fully support his hypotheses the answer to both questions is no if one accepts the accuracy of the data during fama s sample period the current monthly rate of change of consumer prices ct is significantly related to the three previous monthly rates of change of

a good riddance spin offs and the technological performance of parent firms how do spin offs new ventures created by former employees of an incumbent firm affect the technological performance of their parents conventional wisdom holds that spin offs hurt parent firms the parent loses key staff routines are disrupted and performance declines although having some basis in fact we think the negative effects are overstated we argue that spin offs can enable parent firms to realign with their environment thereby avoiding the oncoming obsolescence arising from the combination of organizational inertia and environmental drift using data from the hard disk drive industry we find evidence that although the main effect of having a spin off on a parent firm s technological performance is positive the overall impact of a spin off depends upon the technological sophistication of the spin off and the time since the spin off occurred indeed parent firms of technologically sophisticated successful spin offs initially suffer poorer technological performance but over time they outperform firms that had no spin offs both effects are amplified to the extent that the spin off is more successful which we attribute to both increased environmental realignment and the positive signal that successful spin offs transmit to the broader labor market about the parent organization s reputation as an incubator of entrepreneurs and a desirable place to work

unit roots and persistence in the nominal interest rate a confirmatory analysis applied to the oecd this paper investigates the stochastic properties of long term and short term nominal interest rates for the oecd over the post war era for that purpose we employ univariate unit root tests as well as panel unit root and stationarity tests that explicitly allow for cross sectional dependence overall we find overwhelming evidence that the nominal interest rate contains a unit root which may be driven by a stochastic common factor the computation of half lives through impulse response functions also points to a high degree of persistence this has important implications for the cointegration analysis of the fisher equation the uncovered interest parity and the term structure jel classification

estimation of the specification error in the fisher equation this paper asks how false is the fisher hypotheis previous work has asked is the fisher hypothesis true the framework here characterizes the specification error in the the fisher equation as model noise following durlauf and hall 1988 1989a 1989b the noise provides a metric for the specification error for the post war period to october 1979 the variance of the noise is small while after that date it is apparently large that is using a method that contains many previous tests of the fisher effect in explaining nominal in explaining nominal interest rate movements mishkin 1991 has criticized this consensus as reflection a common stochastic trend in inflation and nominal interest rates prior to october 1979 the test here is immune to this criticism as i use the ex post real interest rate as the regressand and show that at least prior to october 1979 it obeys a sationary process

does anticipated monetary policy matter an econometric investigation a heated debate has arisen over the policy ineffectiveness proposition associate with the work of lucas sargent and wallace it postulates that anticipated aggregate demand policy will have no effect on business cycle fluctuations so that one deterministic feedback policy rule is as good as any other from the point of view of stabilizing the economy this paper develops a methodology for empirically analyzing rational expectations models displaying this neutrality result and then applies it to the important question of whether anticipated monetary policy matters to the business cycle

on the existence of persistently outperforming firms this study analyses persistence in growth rates for a data set of manufacturing firms of all sizes previous quantile autoregressions of firm growth rates show that extreme growth events are likely to be negatively correlated over time thus questioning the existence of persistent outperformers by supplementing the quantile regression analyses with transition probability matrices our study shows that bouncing firms coexist with persistent outperformers this result is shown to be robust for all size classes as well as for the exclusion of firms who experienced acquisitions or spin offs

stumblers and stars in the management of rapid growth this article examines the problems of managing a rapid growth firm we contend that instead of being a time for entrepreneurial celebration and relief a period of over 50 growth is a time for wariness and some very difficult decisions such firms face a fragile transition they are beyond being intimate cohesive entrepreneurial ventures but they have not yet become secure stable entities not only are they in flux but these firms are often disoriented by the pace at which change is occurring firms such as atari cray research cullinet osborne computers people express and rolm recently have faced or now face these challenges with very different degrees of success this article presents observations drawn from several sources a study of thirty rapid growth firms which we have underway literature and press accounts of rapid growth and our consulting and discussions with executives in such firms while far from definitive the article reports several themes that are very pronounced in the situations we have studied these themes are of two types 1 recurring challenges and traps faced by rapid growth companies and 2 characteristics af firms which seem to avoid or surmount these traps these are the four fundamental challenges that we see confronting rapid growth firms 1 1 instant size these firms double and triple in size very quickly this in turn creates problems of disaffection inadequate skills and inadequate systems 2 2 a sense of infallibility by virtue of their success to date rapid growth firms often view their strategies and behaviors as infallible the unfortunate irony is that they become convinced of their wisdom while the environment is turbulent and large competitors are entering 3 3 internal turmoil as a social organism a firm growing at 50 per year is under great strain there is a stream of new faces people who do not know each other and who do not know the company decision making suffers turf battles abound and people burn out 4 4 extraordinary resource needs rapid growth firms are typically cash starved instead of abundance they often face a bare bones existence each of these challenges calls for its own solutions but we have observed some overarching themes in firms that have successfully traversed a period of rapid growth the chief executive is able to envision and anticipate the firm as a larger entity the team needed for tomorrow is hired and developed today the original core vision of the firm is constantly and zealously reinforced new big company processes are introduced gradually as supplements to rather than replacements for existing approaches hierarchy is minimized employees hold a financial stake in the firm beyond developing these themes for success the article concludes with a brief discussion of the effectiveness of owner founders in rapid growth situations

a theory of the early growth of the firm economic enterprise consists in the matching of resources and opportunities to create value growth processes of the new enterprise are here explored in a systems model inspired by penrose a sequence of phases in the early life of the firm reflects growth processes and problems solutions giving rise to new problems firms must access mobilize and deploy resources before they can generate resources for growth subsequent phases in which growth reinforcement and growth reversal forces content are not universal but are set in motion in an important minority of firms the major job creators beyond the early phases critical problems facing the firm are more diverse the growth of the firm is related to the building of the competence needed to respond to changing industrial opportunities copyright 1998 by oxford university press

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

the effects of inflation and income taxes on interest rates some new evidence this paper reexamines the empirical relation between inflation and interest rates concentrating on the tax effect proposed by darby and feldstein using the random walk intercept model relative responses of taxable yields and tax exempt yields to expected infla tion are estimated the results show that for the sample period 1953 1982 the nominal yields on treasury bills rise at a rate greater than one for one with expected inflation while the nominal yields on default free municipal bonds rise approximately one for one with expected inflation thus the tax adjusted fisher hypothesis by darby and feldstein is empirically supported the components of treasury bills are also extracted and their variances are compared it is shown that variation of expected inflation is not overwhelmingly larger than that of the after tax real rate therefore on an after tax basis changes in the real rate explain a substantial portion of changes in the nominal rate of interest

short term interest rates as predictors of inflation on testing the hypothesis that the real rate of interest is constant in an innovative and provocative paper in this review eugene fama presents evidence which appears to be consistent with the joint hypothesis that the real rate of interest ignoring taxes is a constant and that the market for u s treasury bills is efficient in the sense of embodying rational expectations those findings are strikingly at variance with a long list of previous studies which seemed to support the view that the real rate of interest varies over time and can be related to economic variables such as real output monetary policy and so forth 2 the methodologies which lead to these contradictory conclusions are quite different previous studies had followed the lead of irving fisher by relating nominal interest rates to distributed lags on past rates of inflation 3 these distributed lags are generally interpreted as approximations to the market s expected rate of inflation and thus any remaining variation is attributed to variation in the real rate 4 fama s methodology on the other hand draws on the fact that the difference between the market interest rate and the subsequently observed rate of inflation the ex post real interest rate consists by definition of the ex ante real interest rate plus a pure forecasting error 5 the hypothesis of market efficiency implies that these forecasting errors must be serially random thus observing ex post real rates is equivalent to observing ex ante real rates with random measurement error these errors of course confound the problem of identifying variation in the ex ante real rate in this paper we will argue that the relative magnitude of these measurement errors is such that the tests carried out by fama were not powerful enough to reject the joint hypothesis that the ex ante real rate is a constant and expectations are rational more powerful tests which are presented in this paper using the same data do lead to rejection of that hypothesis of course rejection

early employment expansion and long run survival examining employee turnover as a context factor abstract we investigate under which circumstances early employment growth translates into greater long run survival drawing on penrose s growth theory we suggest that the relationship between early employment growth and long run survival is conditional on employee turnover we argue that higher employee turnover reduces joint experience in the firm and disrupts the development and eventual exploitation of the firm s productive opportunity set thereby reducing long term utilization of early employment expansion these arguments suggest that the firm s ability to realize long term benefits of early employment growth is contingent upon low employee turnover following this initial expansion using the danish integrated database for labor market research we show that only when employee turnover is low will early employment growth lead to higher survival in the long run