Firm growth, persistence and multiplicity of equilibria: an analysis of Spanish manufacturing and service industries.

This thesis examines to what extent the firm size influences on firm growth and their behaviour of Spanish manufactures and service industries between 1994 and 2002 from the stochastic growth theory. The study has not only responded to the need of considering firm size as a key variable for future firm growth, but it has also examined the impacts of different industries for the development of firms, the learning process and the impact of internal and external firm characteristics. The firm growth is the process affecting firms while they remain active in the market. While some theories justify the firm growth as an adjustment of size due to internal or external environment, others have justified the change of size as a response to luck factors.To analyse it we have based on Gibrat's Law or Law of Proportionate Effects. Gibrat's Law suggests that all firms have the same probability to grow independently of their size. Although the researcher's interest to analyse it there are some mix results in the literature and there are still some lacks in the literature. According to the empirical review of the Gibrat's Law, several are the results to be stood out. Firstly, the firm growth is a complex process affected by internal and external characteristics which may be due to deterministic or random factors. Secondly, there appear some outstanding lacks of empirical studies. On the one hand, there are few empirical studies analysing the service industries. On the other hand, there is a scarcity of researchers incorporating the spatial dimension in their analysis.Our results refuse Gibrat's Law both for manufactures and service industries and, more interestingly, those results do not vary when introducing the firm learning process in the market. In reference to the differences between each individual sector, there appear different growth behaviours depending on the industry. It is well known that the firm growth pattern depends on the characteristics of industry and our results show a different behaviour depending on the industry. Therefore, if we consider different sectors, the firm growth pattern presents a heterogeneous trend. Each industry has quite different technologies and perhaps different growth processes, which might explain the mixed nature of the results.The persistence of firm growth offers a dynamic approach to the growth pattern. The relationship between past and current growth rates have been another aspect related with Gibrat's Law. The persistence of firm growth is highly important for policy-makers and managers, who should consider the pattern driving firm growth in order to increase the profitability of their investments, the job creation and the economic growth. As it was expected, the effect of the persistence depends on the proximity of the growth. In other words, a positive growth will have more impact on the following period than two periods later. Related to the analysis of the presence of different equilibria of firm growth, our results show that there is a significant difference in growth between manufacturing and service sector firms which persist when controlling for other firm specific characteristics. Nevertheless, the introduction of the location variables generates that those different trends are not significant. In order to know how important the differentiation between manufactures and service industries is, we estimate Gibrat's Law for manufactures and service industries in separate equations. When we separate the estimation of both industries, our results accept that the equilibria are different including the locational variables.In reference to the determinants of firm growth, variables such as the territorial R&D and the growth of GDP have positive externalities to firm growth. On the other hand, the industrial diversity or specialisation present different results depending on the sector. Finally, barriers to entry such as capital intensity and minimum efficient size behave as barriers to grow. That means that sectors which are highly capital intensive, they will prevent firms from growing. Conversely, sectors with low barriers to entry have low barriers to grow. However, those barriers to grow may be surpassed with internal characteristics such as innovation, cooperation, increase of human capital, etc.Aquesta tesis examina la influència de la dimensió de l'empresa en el creixement empresarial, així com el comportament de les manufactures i els serveis d'Espanya entre 1994 i 2002 des d'una perspectiva estocàstica. Aquesta tesis no només respon a la necessitat de considerar el tamany de l'empresa com una variable crucial per al futur de l'empresa sinó també les característiques sectorials, el procés d'aprenentatge i les característiques internes i externes. El creixement empresarial és el procés que afecta a les empreses mentre estan actives en el mercat. Mentre que algunes teories justifiquen el creixement de l'empresa com un procés d'ajust cap al tamany òptim, altres teories justifiquen el creixement a un conjunt de factors aleatoris. Per tal d'analitzar el creixement empresarial, ens basem en la Llei de Gibrat o Llei dels Efectes Proporcionals. Llei de Gibrat suggereix que totes les empreses tenen la mateixa probabilitat per créixer independentment del seu tamany. Tot i l'interès del tema, els resultats en la literatura empírica són contradictoris i existeixen encara alguns buits. D'acord amb la revisió empírica de la Llei de Gibrat, diferents resultants poden ser destacats. En primer lloc, el creixement empresarial és un procés complex que depén de característiques internes i externes que poden afecten de forma determinística o aleatòria. En segon lloc, hi ha varies buits en la literatura. Per una banda, pocs estudis empírica analitzen els serveis. Per altra banda, hi ha una escassetat d'investigadors que incorporen la dimensió locacional.Els nostres resultats refusen la Llei de Gibrat per les manufactures I els serveis i, a més a més, aquests resultats no varien quan introduïm el procés d'aprenentatge de l'empresa en el mercat. Quant a les diferències entre cada sector individual, apareixen comportaments de creixement diferents en funció de la indústria. És un fet conegut que el creixement de l'empresa depèn de les característiques de la indústria i els nostres resultats mostren un comportament diferent en funció del sector industrial. Per tant, cada indústria té diferents característiques tecnològiques i diferent processos de creixement, els quals poden explicar els resultats contradictoris de la literatura.La persistència del creixement empresarial ofereix una perspectiva dinàmica del creixement de l'empresa. La relació entre creixement passat i actual és un alter aspecte relacionat amb la Llei de Gibrat. La persistència del creixement empresarial és molt important per als agents públics i directors, els quals hauries de tenen compte el comportament que dirigeix el creixement empresarial per tal d'incrementar els beneficis de les seves inversions, la creació de l'ocupació i el creixement econòmic. Com era d'esperar, l'efecte de la persistència depèn de la proximitat temporal del creixement. En altres paraules, un creixement positiu tindrà més impacte en el període següent que dos períodes després. Quant a l'anàlisi de la presència de diferents equilibris de creixement empresarial, els nostres resultats mostren que hi ha una diferència significativa en el creixement entre els sectors manufacturers i els serveis la qual persisteix quan controlem per altres característiques específiques de l'empresa. No obstant, la introducció de les variables locacionals generata que aquesta tendència sigui no significativa. Per tal de saber com d'important és la diferenciació entre manufactures i serveis s'estima la Llei de Gibrat per a les indústries manufactureres i els serveis en equacions separades. En separar les estimacions d'ambdues indústries, els nostres resultats accepten l'existència de diferents equilibris quan s'inclouen les variables locacionals. Quant als determinants dels creixement empresarial, variables com la intensitat tecnològica territorial i el creixement del PIB presenten externalitats positives sobre el creixement empresarial. Per altra banda, la diversitat o especialització industrial tenen impactes diferents en funció del sector a analitzar. Finalment, barreres d'entrada com la intensitat del capital i el tamany mínim eficient es comporten com barreres al creixement. Això vol dir que sectors que són intensiu en capital dificultaran el creixement de les empreses. Pel contrari, sectors amb baixes barreres d'entrada tenen baixes barreres al creixement. No obstant, aquestes barreres al creixement poden ser superades amb característiques internes com la innovació, la cooperació, l'increment del capital humà, etc

Productivity growth and competition in spanish manufacturing firms: What has happened in recent years?

This paper addresses the issue of the relationship between productivity and market competition. In comparison to the economies of other European countries, the Spanish economy has been growing, while productivity growth has stagnated. Here we provide empirical evidence about the relationship between productivity and market competition from Spanish manufacturing firms at firm level between 1994 and 2004. Correcting for selection bias, our study pays special attention to the patterns of productivity growth between openness and non-openness firms. When market competition increases the effect on firms operating in domestic markets is positive but when the level of competition is high incentives to invest in innovation and productivity gains disappear. The empirical relationship between competition and productivity is an inverted U-shape, where productivity growth is highest at intermediate levels of competition. The productivity growth of firms operating in international markets is higher than that of non-openness firms, but when market competition rises they moderate their productivity growth. Our empirical results suggest that the correct competition policy in the Spanish economy should remove the barriers to competition in internal markets in order to increase the incentives for manufacturing firms to invest in innovation and productivity growth.Manufacturing industries, innovation, competitiveness, international trade, Heckman equation

Immigration and Firm Performance: a city-level approach

This article analyses the effect of immigration flows on the growthand efficiency of manufacturing firms in Spanish cities. While most studies werefocusing on the effect immigrants have on labour markets at an aggregate level,here, we argue that the impact of immigration on firm performance should not onlybe considered in terms of the labour market, but also in terms of how city’s amenitiescan affect the performance of firms. Implementing a panel data methodology,we show that the immigrants’ increasing pressure has a positive effect on labourproductivity and wages and a negative effect on the job evolution of these manufacturingfirms. In addition, both small and new firms are more sensitive to thepressures of immigrant inflow, while foreign market oriented firms report higherproductivity levels and a less marked impact of immigration than their counterparts.We also present a set of instruments to control for endogeneity. It allows us toconfirm the effect of local immigration flows on the performance of manufacturingfirms

Barriers to Innovation and Public Policy in Catalonia.

The present paper analyses the link between firms’ decisions to innovate and the barriers that prevent them from being innovative. The aim is twofold. First, it analyses three groups of barriers to innovation: the cost of innovation projects, lack of knowledge and market conditions. Second, it presents the main steps taken by Catalan Government to promote the creation of new firms and to reduce barriers to innovation. The data set used is based on the 2004 official innovation survey of Catalonia which was taken from the Spanish CIS-4 sample. This sample includes individual information on 2,954 Catalan firms in manufacturing industries and knowledge-intensive services (KIS). The empirical analysis reveals pronounced differences regarding a firm’s propensity to innovate and its perception of barriers. Moreover, the results show that cost and knowledge barriers seem to be the most important and that there are substantial sectoral differences in the way that firms react to barriers. The results of this paper have important implications for the design of future public policy to promote entrepreneurship and innovation together.Obstacles to innovation, Industrial policy, Innovation system

Small firms, growth and financial constraints

This paper analyses the impact of different sources of finance on the growth of firms. Using panel data from Spanish manufacturing firms for the period 2000-2006, we investigate the effects of internal and external finances on firm growth. In particular, we examine three dimensions of these financial sources: a) the performance of the firms' capital structure in accordance with firm size; b) the effects of internal and external financial sources on growth performance; c) the combined effect of equity, external debt and cash flow on firm growth. We find that low-growth firms are sensitive to cash flow and short-term bank debt, while high-growth firms are more sensitive to long-term debt. Furthermore, equity capital seems to reduce barriers to external finance. Our main conclusion is that during the start-up phase, firms are unable to increase their financial leverage and so their capital structure fails to promote correct investment strategies. However, as their equity capital increases, alternative financial mechanisms, in particular long-term debt, become available, which have a positive impact on firm growth

Productivity growth and competition in Spanish manufacturing firms : What has happened in recent years?

This paper addresses the issue of the relationship between productivity and market competition. In comparison to the economies of other European countries, the Spanish economy has been growing, while productivity growth has stagnated. Here we provide empirical evidence about the relationship between productivity and market competition from Spanish manufacturing firms at firm level between 1994 and 2004. Correcting for selection bias, our study pays special attention to the patterns of productivity growth between openness and non-openness firms. When market competition increases the effect on firms operating in domestic markets is positive but when the level of competition is high incentives to invest in innovation and productivity gains disappear. The empirical relationship between competition and productivity is an inverted U-shape, where productivity growth is highest at intermediate levels of competition. The productivity growth of firms operating in international markets is higher than that of non-openness firms, but when market competition rises they moderate their productivity growth. Our empirical results suggest that the correct competition policy in the Spanish economy should remove the barriers to competition in internal markets in order to increase the incentives for manufacturing firms to invest in innovation and productivity growth

Immigration and Firm Growth : Evidence from Spanish cities

This article analyses the effect of immigration flows on the growth and efficiency of manufacturing firms in Spanish cities. To date, most studies have tended to focus on the effect immigrants have on labour markets at an aggregate level. Here, however, we undertake an exhaustive analysis at the firm level and report conclusive empirical findings. Ten years ago, Spain began to register massive immigration flows, concentrated above all on its most dynamic and advanced regions. Here, therefore, rather than focusing on the impact this has had on Spain's labour market (changes to the skill structure of the workforce, increase in labour supply, the displacement of native workers, etc.), we examine the arrival of immigrants in terms of the changes this has meant to the structure of the country's cities and their amenities. Thus, we argue that the impact of immigration on firm performance should not only be considered in terms of the labour market, but also in terms of how a city's amenities can affect the performance of firms. Employing a panel data methodology, we show that the increasing pressure brought to bear by immigrants has a positive effect on the evolution of labour productivity and wages and a negative effect on the job evolution of these manufacturing firms. In addition, both small and new firms are more sensitive to the pressures of such immigrant inflows, while foreign market oriented firms report higher productivity levels and a less marked impact of immigration than their counterparts. In this paper, we also present a set of instruments to correct the endogeneity bias, which confirms the effect of local immigration flows on the performance of manufacturing firms

Like milk or wine : does firm performance improve with age?

Our empirical literature review shows that little is known about how firm performance changes with age, presumably because of the paucity of data on firm age. For Spanish manufacturing firms, we analyse the firm performance related to firm age between 1998 and 2006. We find evidence that firms improve with age, because ageing firms are observed to have steadily increasing levels of productivity, higher profits, larger size, lower debt ratios, and higher equity ratios. Furthermore, older firms are better able to convert sales growth into subsequent growth of profits and productivity. On the other hand, we also found evidence that firm performance deteriorates with age. Older firms have lower expected growth rates of sales, profits and productivity, they have lower profitability levels (when other variables such as size are controlled for), and also that they appear to be less capable to convert employment growth into growth of sales, profits and productivity

Barriers to innovation and public policy in Catalonia

The present paper analyses the link between firms' decisions to innovate and the barriers that prevent them from being innovative. The aim is twofold. First, it analyses three groups of barriers to innovation: the cost of innovation projects, lack of knowledge and market conditions. Second, it presents the main steps taken by Catalan Government to promote the creation of new firms and to reduce barriers to innovation. The data set used is based on the 2004 official innovation survey of Catalonia which was taken from the Spanish CIS-4 sample. This sample includes individual information on 2,954 Catalan firms in manufacturing industries and knowledge-intensive services (KIS). The empirical analysis reveals pronounced differences regarding a firm's propensity to innovate and its perception of barriers. Moreover, the results show that cost and knowledge barriers seem to be the most important and that there are substantial sectoral differences in the way that firms react to barriers. The results of this paper have important implications for the design of future public policy to promote entrepreneurship and innovation together

A territorial approach to R&D subsidies : Empirical evidence for Catalonian firms

Using a database of 2,263 responses to R&D public calls in Catalonia, during the period 2007-2010, this paper proceeds to analyse the potential interaction of the territorial and policy dimensions with the propensity to apply for, and be awarded, a public R&D subsidy. Controlling for characteristics at the firm and project level, we estimate models using a twostep procedure. In the first step, our results suggest that large firms which export and which belong to high-tech manufactures are more likely to participate in a public R&D call. Furthermore, both urban location and past experience of such calls have a positive effect. Our territorial proxy of information spillovers shows a positive sign, but this is only significant at intra-industry level. Membership of one of the sectors prioritized by the Catalan government, perhaps surprisingly, does not have a significant impact. In the second step, our results show that cooperative projects, SMEs or old firms shows a positive effect on the probability of obtaining a public subsidy. Finally, the cluster policy does not show a clear relationship with the public R&D call, suggesting that cluster policies and R&D subsidies follow different goals. Our results are in line with previous results in the literature, but they highlight the unequal territorial distribution of the firms which apply and the fact that policymakers should interlink the decision criteria for their public call with other policies