The Determinants of Firm Growth in Small and Micro Firms - Evidence on Relationship Lending Effects

24 Pages Posted: 16 Jan 2006

See all articles by Mervi Niskanen

Mervi Niskanen

University of Eastern Finland

Jyrki Niskanen

University of Kuopio - Department of Business and Management

Date Written: January 15, 2007

Abstract

This paper examines the impact of firm level variables on the growth of small and micro firms operating in Finland. This study is the first one to investigate the impact that lending relationships have on growth. The results of our primary regressions show that close lending relationships enhance growth for all firms, but that only the larger firms in our sample benefit from more competitive banking markets. When we split the data into manufacturing and non-manufacturing firms, we find that only non-manufacturing firms benefit from close bank-borrower relationships. We additionally find that younger firms exhibit higher growth rates than older firms. Firm size seems to have a more complicated relationship with growth. Our results suggest that in the case of smaller firms an increase in size initially increases growth, but the effect is reversed after a certain level. For the larger firms with more than ten employees, we cannot reject Gibrat's law. Contrary to previous studies, we find that legal form is a significant determinant of firm growth only in the absence of more detailed ownership variables.

Keywords: Growth, small firm, relationship lending

JEL Classification: G21, G32

Suggested Citation

Niskanen, Mervi and Niskanen, Jyrki, The Determinants of Firm Growth in Small and Micro Firms - Evidence on Relationship Lending Effects (January 15, 2007). Available at SSRN: https://ssrn.com/abstract=874927 or http://dx.doi.org/10.2139/ssrn.874927

Mervi Niskanen (Contact Author)

University of Eastern Finland ( email )

PL 1627
Kuopio, 70211
Finland

Jyrki Niskanen

University of Kuopio - Department of Business and Management ( email )

Kuopio, 70211
Finland

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