Export-market dynamics and the probability of firm closure: Evidence for the UK

This study presents the first empirical analysis of the determinants of firm closure in the UK with an emphasis on the role of export-market dynamics, using panel data for a nationally representative group of firms operating in all-market based sectors during 1997-2003. Our findings show that the probability of closure is (cet. par.) significantly lower for exporters, particularly those experiencing export-market entry and exit. Having controlled for other attributes associated with productivity (such as size and export status), the following factors are found to increase the firm’s survival prospects: higher capital intensity and TFP, foreign ownership, young age, displacement effects (through relatively high rates of entry of firms in each industry), and belonging to certain industries. Interestingly, increased import penetration (a proxy for lower trade costs) leads to a lower hazard rate for exporting entrants and continuous exporters, whilst inducing a higher hazard rate for domestic producers or those that quit exporting.

Firms in Scottish High Technology Clusters: software, life sciences, microelectronics, optoelectronics and digital media – preliminary evidence and analysis on firm size, growth and optimality

This paper reports on: (a) new primary source evidence on; and (b) statistical and econometric analysis of high technology clusters in Scotland. It focuses on the following sectors: software, life sciences, microelectronics, optoelectronics, and digital media. Evidence on a postal and e-mailed questionnaire is presented and discussed under the headings of: performance, resources, collaboration & cooperation, embeddedness, and innovation. The sampled firms are characterised as being small (viz. micro-firms and SMEs), knowledge intensive (largely graduate staff), research intensive (mean spend on R&D GBP 842k), and internationalised (mainly selling to markets beyond Europe). Preliminary statistical evidence is presented on Gibrat’s Law (independence of growth and size) and the Schumpeterian Hypothesis (scale economies in R&D). Estimates suggest a short-run equilibrium size of just 100 employees, but a long-run equilibrium size of 1000 employees. Further, to achieve the Schumpeterian effect (of marked scale economies in R&D), estimates suggest that firms have to grow to very much larger sizes of beyond 3,000 employees. We argue that the principal way of achieving the latter scale may need to be by takeovers and mergers, rather than by internally driven growth.

Entrepreneurial Orientation, Intangible Assets and Firm Growth: the impact of ‘Spirit and Material’ on the growth of Chinese private firms

This paper has three contributions. First, it shows how field work within small firms in PR Chinese has provided new evidence which enables us to measure and calibrate Entrepreneurial Orientation (EO), as ‘spirit’, and Intangible Assets (IA), as ‘material’, for use in models of small firm growth. Second, it uses inter-item correlation analysis and both exploratory and confirmatory factor analysis to provide new measures of EO and IA, in index and in vector form, for use in econometric models of firm growth. Third, it estimates two new econometric models of small firm employment growth in PR China, under the null hypothesis of Gibrat’s Law, using our two new index-based and vector-based measures of EO and IA. Estimation is by OLS with adjustment for heteroscedasticity, and for sample selectivity. Broadly, it finds that EO attributes have had little significant impact on small firm growth, and indeed innovativeness and pro-activity paradoxically may even dampen growth. However, IA attributes have had a positive and significant impact on growth, with networking, and technological knowledge being of prime importance, and intellectual property and human capital being of lesser but still significant importance. In the light of these results, Gibrat’s Law is generalized, and Jovanovic’s learning theory is extended, to emphasise the importance of IA to growth. These findings cast new empirical light on the oft-quoted national slogan in PR China of “spirit and material”. So far as small firms are concerned, this paper suggests that their contribution to PR China’s remarkable economic growth is not so much attributable to the ‘spirit’ of enterprise (as suggested by propaganda) as, more prosaically, to the pursuit of the ‘material’.

The Impact of Higher Education Institution-Firm Knowledge Links on Firm-level Productivity in Britain

This paper estimates whether both sourcing knowledge from and/or cooperating on innovation with HEIs (Higher Education Institutions)1 impacts on establishment-level total factor productivity (TFP) using a dataset created by merging the UK government’s Community Innovation Survey (CIS) with the Annual Respondents Database (ARD). It also considers whether higher graduate employment (as a measure of human capital) also impacts positively on TFP at the establishment-level. Many studies have investigated the relationship between university-firm knowledge links and innovation (see, for example, Mansfield, 1991; Becker, 2003; Thorn et al, 2007). Most of these studies find a positive impact. Fewer studies have investigated the impact of university-firm knowledge links on productivity. Belderbos et al. (2004), using the Dutch CIS, find that cooperation with universities has no statistically significant impact on the growth of labour productivity. Medda et al. (2005) find no statistically significant effect of collaborative research undertaken by Italian manufacturing firms and universities on the growth of TFP. Arvanitis et al. (2008), using Swiss data, show that university-firm knowledge and technology transfer has both a direct impact on labour productivity and an indirect impact through its positive impact on innovation. In sum, there is as yet no clear consensus as to the impact of university-firm knowledge links on productivity.

Firm size and trade secret intensity: evidence from the Economic Espionage Act

This paper considers trade secrecy as an appropriation mechanism in the context ofb the US Economic Espionage Act (EEA) 1996. We examine the relation between trade secret intensity and firm size, using a cross section of 95 court cases. The paper builds on extant work in three respects. First, we create a unique body of evidence, using EEA prosecutions from 1996 to 2008. Second, we use an econometric approach to measurement, estimation and hypothesis testing. This allows us comprehensively to test the robustness of findings. Third, we focus on objectively measured valuations, instead of the subjective, self-reported values used elsewhere. We find a stable, robust value for the elasticity of trade secret intensity with respect to firm size, which indicates that a 10% reduction in firm size leads to a 7% increase in trade secret intensity. We find that this result is not sensitive to industrial sector, sample trimming, or functional form.

An Empirical Examination of the R&D Boundaries of the Firm - A Problem-Solving Perspective

We consider, both theoretically and empirically, how different organization modes are aligned to govern the efficient solving of technological problems. The data set is a sample from the Chinese consumer electronics industry. Following mainly the problem solving perspective (PSP) within the knowledge based view (KBV), we develop and test several PSP and KBV hypotheses, in conjunction with competing transaction cost economics (TCE) alternatives, in an examination of the determinants of the R&D organization mode. The results show that a firm’s existing knowledge base is the single most important explanatory variable. Problem complexity and decomposability are also found to be important, consistent with the theoretical predictions of the PSP, but it is suggested that these two dimensions need to be treated as separate variables. TCE hypotheses also receive some support, but the estimation results seem more supportive of the PSP and the KBV than the TCE.

On the real effects of financial pressure: Evidence from euro area firm-level employment during the recent financial crisis.

Using a large panel of unquoted euro-area firms over the period 2003-11, this paper examines the impact of financial pressure on firms’ employment. The analysis finds evidence that financial pressure negatively affects firms’ employment decisions. This effect is stronger during the 2007-2009 financial crisis, especially for firms in the periphery area compared to their counterparts in the core European economies. We also find that impact of financial pressure on employment is more potent for firms classified as financially constrained and operating in periphery economies during the financial crisis.

Firm survival, uncertainty and financial frictions: Is there a financial uncertainty accelerator?

Using a large panel of unquoted UK over the period 2000-09, we examine the impact of firm-specific uncertainty on corporate failures. In this context we also distinguish between firms which are likely to be more or less dependant on bank finance as well as public and non-public companies. Our results document a significant effect of uncertainty on firm survival. This link is found to be more potent during the recent financial crisis compared with tranquil periods. We also uncover significant firm-level heterogeneity since the survival chance of bank-dependent and non-public firms are most affected by changes in uncertainty, especially during the recent global financial crisis.

Firm survival, uncertainty and financial frictions: Is there a financial uncertainty accelerator?

Using a large panel of unquoted UK firms over the period 2000-09, we examine the impact of firm-specific uncertainty on corporate failures. In this context we also distinguish between firms which are likely to be more or less dependent on bank finance as well as public and non-public companies. Our results document a significant effect of uncertainty on firm survival. This link is found to be more potent during the recent financial crisis compared with tranquil periods. We also uncover significant firm-level heterogeneity since the survival chances of bank-dependent and non-public firms are most affected by changes in uncertainty, especially during the recent global financial crisis.