Sleeping Gazelles: High Profits But No Growth
34 Pages Posted: 24 Feb 2016
Date Written: October 1, 2013
Among 205,322 limited liability firms in Sweden during 1997-2010, more than 10% did not hire new employees in any given 3-year period despite having high profits. Nearly one-third continued to have high profits in the next three-year period, but still no growth. Regression analysis indicates that these firms were not randomly distributed; rather they were small and young, did not belong to an enterprise group, had low own-capital as a share of total liabilities, and operated in local markets with high profit opportunities and low competition. We conclude that it might be more beneficial to focus policy towards these firms instead of towards a few high-growth firms that, having just grown exponentially, may not be best positioned to grow further.
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