The Determinants of Growth in the Information and Communication Technology (ICT) Industry: A Firm-Level Analysis

57 Pages Posted: 3 Mar 2017 Last revised: 26 May 2018

See all articles by Giorgio Canarella

Giorgio Canarella

University of Nevada, Las Vegas

Stephen M. Miller

University of Nevada, Las Vegas - Department of Economics; University of Connecticut - Department of Economics

Date Written: March 2, 2017

Abstract

Why do some firms grow faster than others? This question has become the focus of a large number of empirical studies in industrial organization, strategic management, and entrepreneurship since the publications of Gibrat (1931) and Penrose (1959). Using an unbalanced panel data set of 85 U.S. information and communication technology (ICT) firms that survived over the period from 1990 to 2013, we examine the effect of firm size, agency costs, R&D investments, capital structure, profitability, and the Great Recession of 2007-2009 on firm growth. Adopting the two-step, system, generalized-method-of-moments estimator for linear dynamic panel models (Blundell and Bond, 1998), we document that growth in the ICT industry is not stochastic, as predicted by Gibrat (1931), but driven by systematic factors. We find compelling evidence that in the ICT industry: (i) firm growth exhibits positive persistence, which endorses the controversial "success-breeds-success" evolutionary hypothesis; (ii) agency costs and financial leverage exert a negative effect on firm growth; (iii) R&D investment and financial performance generate a positive effect on firm growth; (iv) the Great Recession (2007-2009) produced a negative effect on firm growth; (v) a nonlinear, inverted U-shaped relationship exists between firm size and firm growth; and (vi) Gibrat’s law does not hold. Our findings remain robust to transformations using first differences and forward orthogonal deviations as well as principal components reductions. These results are new to the literature, since the dynamics of firm growth has not been documented at the ICT industry level. Noteworthy policy implications emerge because the growth dynamics of the ICT industry move this sector toward more concentration and less competition.

Keywords: ICT industry; Agency costs; Firm growth; Panel data; system-GMM

JEL Classification: G21; G28; G32; G34

Suggested Citation

Canarella, Giorgio and Miller, Stephen M., The Determinants of Growth in the Information and Communication Technology (ICT) Industry: A Firm-Level Analysis (March 2, 2017). Economic Modelling, April 2018, Available at SSRN: https://ssrn.com/abstract=2926547 or http://dx.doi.org/10.2139/ssrn.2926547

Giorgio Canarella

University of Nevada, Las Vegas ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154-6005
United States

Stephen M. Miller (Contact Author)

University of Nevada, Las Vegas - Department of Economics ( email )

4505 S. Maryland Parkway
Box 456005
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

HOME PAGE: http://faculty.unlv.edu/smiller/

University of Connecticut - Department of Economics

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
92
Abstract Views
516
rank
304,332
PlumX Metrics