Determinants and Dimensions of Firm Growth

Abstract

Firm growth is an important indicator of a thriving economy. Although the determinants of firm growth have been studied in various disciplines, an integrated analysis is still lacking. This paper attempts to provide such an analysis. Many determinants of firm growth are summarized and classified into three dimensions: individual, organizational, and environmental determinants. By conducting an empirical study using 523 Dutch small and medium sized firms, we identify the determinants of firm growth which is measured by employment growth. Our findings show that environmental determinants do not affect firm growth. Individual ones do: entrepreneurs with growth motivation and having technical knowledge are more likely to grow their firms while entrepreneurs characterized by a strong need of achievement are less likely to engage in firm growth. Organizational determinants have the most influence on firm growth: the older the firm, the less likely it is to grow. Availability of financial capital is found to be crucial to firm growth. Finally, the firm’s scalability (its preparedness to grow) is found to have a positive impact on firm growth.

Keywords: SMEs, firm growth, integrated analysis, individual determinants, organizational determinants, environmental determinants, conceptual approach, statistical approach

JEL Classification: L25, L11