Search Results (9)

This paper provides an in-depth study of how incremental innovation, a ubiquitous factor, affects the sustainability of performance of small- and large-sized firms differently. Specifically, this work examines the sustainability of firm growth in natural resource industries. In these industries, innovation is mainly based on processes in the form of incremental changes, and the adoption of innovations has significant sunk costs. We argue that, before incremental process innovation, firm performance is directly proportional to firm size. However, in the presence of incremental innovation events, firm performance is inversely proportional to firm size since smaller firms pose higher strategic flexibility and can adopt innovations faster. Our empirical findings highlight the relevance of incremental innovation as an inflection point of firm performance, creating a competitive opportunity window for small firms and a sustainability threat for large firms. Full article

Salmon farming stands out from many other industries with its very high profitability, but it is also highly volatile. The main question is whether the profit of individual firms is stable, or whether profitable firms change from year to year. The purpose of this article is to apply the theory of profit persistence to answer this question for salmon farming in Norway. By using panel data from 2010 to 2019, available from public statistics, we study the relative deviation from the average profits. We estimate the speed of adjustment to the profit norm by using a dynamic GMM estimator. We find a high degree of convergence to the average profit among salmon farmers. For companies belonging to the group with below-average profit, there is a positive correlation between growth and profitability and a negative link between debt ratio and deviation of profit rate. Our finding is that although the Norwegian aquaculture industry has large profits, there is large volatility in the profits of this industry. This is useful knowledge for investors, lenders, public authorities and others who need to know something about the risk in the aquaculture industry. Full article

The restaurant industry is quite similar across borders. It is a labour-intensive industry that is important for tourism and employment. It consists mainly of many small businesses that are regionally dispersed. There are many studies that have analysed this sector. However, rather few articles have focused on the dynamics of growth and profit. The purpose of this paper is to apply the theory of profit persistence and the law of proportionate effect (LPE) to Norwegian restaurants by using publicly available public panel data from 2010 to 2019. The sample includes 866 restaurants. One important finding is that Gibrat’s law (LPE) does not seem to hold, meaning the growth is not independent of the size of the firms. Small businesses grow faster than the others, and they are also more profitable. There is some degree of profit persistence in the restaurant industry. Profitability is negatively linked to debt ratios but positively related to working capital. The study shows there is a trade-off between size and profit. These findings are useful for the industry and for others (public planning, lenders, and more). Full article

Although campsites are an important segment of the tourist sector, few applied articles have analyzed their growth path and tested Gibrat’s Law for firms within this industry. This knowledge can be of importance to the authorities when analyzing the regional impacts of growth in this sector. With government statistics from the last decade, we use a GMM framework to test the stricter version of Gibrat’s Law, which consist of three parts: the campsites’ growth trend, how they carry over success and failure, and how volatile their size is. The first and third part are rejected for Norwegian campsites, leading to a rejection of Gibrat’s Law. To see if firms of different sizes follow different dynamics, we split the sample in three parts. Here, we find evidence of a threshold size, as large campsites follow a fundamentally different dynamic than small and medium campsites. Specifically, large campsites gain no stability in revenue by further increases in size, whereas they carry over success/failure across years. The opposite is true for the rest of the sector. Gibrat’s Law is rejected on at least one count for each of the sub-samples. Lastly, we supplement the analysis with economy-wide and firm-specific variables to test further hypotheses. Full article

We analytically derived and confirmed by empirical data the following three relations from the quasi-time-reversal symmetry, Gibrat’s law, and the non-Gibrat’s property observed in the urban population data of France. The first is the relation between the time variation of the power law and the quasi-time-reversal symmetry in the large-scale range of a system that changes quasi-statically. The second is the relation between the time variation of the log-normal distribution and the quasi-time-reversal symmetry in the mid-scale range. The third is the relation among the parameters of log-normal distribution, non-Gibrat’s property, and quasi-time-reversal symmetry. Full article

This paper maps out the structure and relative dynamics of cities of various size classes in India. It aims to address their hierarchical distribution, by employing the rank-size rule, Gibrat’s law, and a primacy index. The implications of urban concentrations for GDP, banking system, FDI, civic amenities, and various urban externalities (such as pollution and spatial exclusion) are also examined. It shows that India’s urban system, though it follows the rank-size rule, is huge and top-heavy. It follows also Gibrat’s law of proportionate growth. Although India’s cities collectively account for less than one third of the total population, they command more than three fourths of the country’s GDP. Megacities have become congested, clogged, polluted, and also show significant social polarization. There is a gridlock situation for the cities, inhibiting their potential for becoming effective economic and social change sites. The top-heavy character of India’s urban system also adversely impacts the balanced regional development of the country. Full article

We explore the impact of research and development (R&D) on sales growth rate with firm-specific factors under the Korean pharmaceutical industry structure using listed Korea pharmaceutical company data from 2007 to 2018 with the quantile regression technique. We find that R&D intensity has a positive effect on firm growth rate while R&D scale a negative effect on the firm growth rate at the upper quantile, whereas the result is opposite at the lower quantile. Firm size has a mixed relationship with sales growth at the upper quantile, thus Gibrat’s law is rejected in the Korean pharmaceutical industry. Firm age has a negative relationship with the sales growth rate at the upper quantile, which shows the consistent result with previous research that young firms grow faster. Patent persistence has a negative relationship with sales growth at the upper quantile, while a positive effect at the lower quantile. We show that young firms and firms with high R&D intensity contribute to the high growth rate, while the relationship is not clear at the lower quantile. Therefore, policy implication in this research is that the government should pay attention to encouraging and supporting R&D investment activities and small firms as well as consider ways to enhance patent rights. Full article

In this paper, we provide empirical evidence for understanding the growth behavior of China’s new generation of information technology (IT) industrial firms and the impact of innovation and market power on them. Based on the data of China’s new generation IT industrial firms covering the period 2000–2007, we use ordinary least square (OLS) and two-stage least squares (IV-2SLS) methods to study the effects of innovation and markup on the growth of China’s new generation IT industrial firms in the framework of Gibrat’s law. IV-2SLS estimations show that: (1) Innovation and markup have positive and significant effects on the firm’s total revenue growth rate, but have no significant or negative effects on the growth rate of the firm’s total assets and employment. (2) Innovation has a positive and significant effect on the firm’s mark-up. The results indicate that for China’s new generation IT industrial firms which are technology-intensive, improving the technological innovation and market power will reduce the firm’s input and increase the firm’s output. Innovation can significantly increase the firm’s mark-up. (3) From the perspective of the dynamic evolution of a firm’s growth, firm size has a negative and significant impact on the firm growth while firm age has a positive and significant impact on the firm’s growth. In addition, we also examine the different effects of capital intensity and export demand on the firm’s growth. Full article

The structure of urban hierarchy and the role of cities of different sizes have drawn considerable scholarly interests and societal concerns. This paper analyzes the evolution and underlying mechanisms of urban hierarchy in China during the recent period of rapid urbanization. By comparing scale changes of seven types of cities (megacity, large city, Type I big city, Type II big city, medium-sized city, type I small city and type II small city), we find that allometry is the main characteristic of urban hierarchical evolution in China. We also test the validity of Zipf’s law and Gibrat’s law, which broaden the scope of existing studies by including county-level cities. We find that urban hierarchical distribution is lognormal, rather than Pareto. The result also shows that city size growth rates are constant across cities of different types. For better understanding of the mechanisms of urban hierarchical formation, we measure the optimal city size and resource allocation by the Pareto optimality criterion and non-parametric frontier method. The main findings are as follows: (1) scale efficiency is still at a relatively low level among the seven types of cities; (2) the economic efficiency of megacities and large cities is overestimated when compared to economic-environmental efficiency. Hence, this paper has two policy implications: (1) to correct factor market (land, labor and infrastructure investment) distortions among different types of cities for the improvement of efficiency; (2) to strengthen rural property rights to improve social equity, as well as land use intensity. Full article