Sources of Firm Life-Cycle Dynamics: Differentiating Size vs. Age Effects

43 Pages Posted: 27 Oct 2014 Last revised: 28 Nov 2014

See all articles by Lorenz Kueng

Lorenz Kueng

University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management

Mu-Jeung Yang

University of Washington - Department of Economics

Bryan Hong

Henry W. Bloch School of Management, University of Missouri-Kansas City

Multiple version iconThere are 2 versions of this paper

Date Written: October 2014

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.

Suggested Citation

Kueng, Lorenz and Yang, Mu-Jeung and Hong, Bryan, Sources of Firm Life-Cycle Dynamics: Differentiating Size vs. Age Effects (October 2014). NBER Working Paper No. w20621, Available at SSRN: https://ssrn.com/abstract=2515199

Lorenz Kueng (Contact Author)

University of Lugano - Faculty of Economics

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Swiss Finance Institute

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Northwestern University - Kellogg School of Management

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Mu-Jeung Yang

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Bryan Hong

Henry W. Bloch School of Management, University of Missouri-Kansas City ( email )

5110 Cherry St
Kansas City, MO 64110
United States

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