TY - JOUR
T1 - Testing the principle of 'growth of the fitter'
T2 - The relationship between profits and firm growth
AU - Coad, Alex
N1 - Funding Information:
Thanks go to Adrian Coad, Giovanni Dosi, Bernard Paulré, and two anonymous referees for helpful comments, and to Mahmut Yasar for invaluable help on econometric issues. Financial support from the Center for International Programs Abroad at Emory University, Atlanta, is gratefully acknowledged. The usual caveat applies.
PY - 2007/9
Y1 - 2007/9
N2 - This paper is an empirical investigation of the evolutionary principle of 'growth of the fitter'. Previous studies suggest that growth does not discriminate between firms according to their fitness, when this latter is proxied by productivity. We use the profit rate (operating surplus/value added) as a proxy for fitness and explore its influence on subsequent growth rates by tracking 8405 French manufacturing firms over the period 1996-2004. We overcome problems of unobserved firm-specific effects, persistence and endogeneity by using the 'system GMM' estimator developed by Blundell and Bond [Blundell, R., Bond, S., 1998. Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics 87, 115-143]. Whilst non-parametric plots do not reveal any obvious relationship between profit rates and subsequent growth, regression analysis identifies a small positive influence. Considering the reciprocal influence of growth on profit rates, positive and significant results suggest that 'Penrose effects' are not a dominant feature of firm dynamics.
AB - This paper is an empirical investigation of the evolutionary principle of 'growth of the fitter'. Previous studies suggest that growth does not discriminate between firms according to their fitness, when this latter is proxied by productivity. We use the profit rate (operating surplus/value added) as a proxy for fitness and explore its influence on subsequent growth rates by tracking 8405 French manufacturing firms over the period 1996-2004. We overcome problems of unobserved firm-specific effects, persistence and endogeneity by using the 'system GMM' estimator developed by Blundell and Bond [Blundell, R., Bond, S., 1998. Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics 87, 115-143]. Whilst non-parametric plots do not reveal any obvious relationship between profit rates and subsequent growth, regression analysis identifies a small positive influence. Considering the reciprocal influence of growth on profit rates, positive and significant results suggest that 'Penrose effects' are not a dominant feature of firm dynamics.
KW - Firm growth
KW - Panel data
KW - Penrose effects
KW - Profitability
KW - Replicator dynamics
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U2 - 10.1016/j.strueco.2007.05.001
DO - 10.1016/j.strueco.2007.05.001
M3 - Article
AN - SCOPUS:34447107815
SN - 0954-349X
VL - 18
SP - 370
EP - 386
JO - Structural Change and Economic Dynamics
JF - Structural Change and Economic Dynamics
IS - 3
ER -