Working Paper: NBER ID: w20621
Authors: Lorenz Kueng; Mujeung Yang; Bryan Hong
Abstract: What determines firm growth over the life-cycle? Exploiting unique firm panel data on internal organization, balance sheets and innovation, representative of the entire Canadian economy, we study recent theories that examine life-cycle patterns for firm growth. These theories include organizational capital accumulation and management practices, financial frictions, learning about demand, and recent endogenous growth models with incumbent innovation. We emphasize the importance of differentiating between pure age effects of these theories and effects on size conditional on age. Our stylized facts highlight both empirical successes and shortcomings of current theory. First, models of organizational capital and innovation are broadly consistent with firm size correlations conditional on age but have difficulties matching the life-cycle dynamics of firm organization and innovation. Second, among theories we analyze, organizational capital and management practices are the most important determinants to explain intensive margin firm growth over the life-cycle. Third, although less important to explain intensive margin firm growth, financial frictions are an important determinant of firm exit, conditional on firm age.
Keywords: firm growth; lifecycle dynamics; organizational capital; management practices; financial frictions; innovation
JEL Codes: D2; D22; D23; D24; D9; D92; E20; E24; E32; F23; G3; G32; M1; M5; O3; O4; O47; O51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| organizational capital and management practices (D29) | intensive margin firm growth (L25) |
| age (J14) | likelihood of adopting performance pay (J33) |
| age (J14) | likelihood of product and process innovations (O36) |
| financial frictions (G19) | firm exit (G33) |
| size (L25) | likelihood of innovation (O35) |