Competencies and Institutions Fostering High-growth Firms

Abstract

High-growth firms (HGFs) are critical for net job creation and economic growth. We analyze HGFs using the theory of competence blocs, linking firm growth to property rights and the interaction of complementary expertise. Specifically, we discuss how the institutional framework affects the prevalence and performance of HGFs. Firm growth is viewed as resulting from the perpetual discovery and use of productive knowledge. A key element in this process is the competence bloc, a nexus of economic actors with complementary competencies that are vital in order to generate and commercialize novel ideas. The institutional framework determines the incentives for these individuals to acquire and utilize knowledge. We identify a number of institutions that foster the emergence of competence blocs and the creation of HGFs. In particular, our analysis points to the pivotal roles played by tax structures, labor market regulation, and the contestability of currently closed service markets. Finally, we characterize institutions beneficial for sclerotic or dynamic capitalism, respectively, depending on whether they provide a favorable environment for the emergence of competence blocs and the creation of HGFs.

Financial and Institutional Reforms for an Entrepreneurial Society

“…The authors collected and analyzed data on 20 European countries and the USA and show how a core set of institutions, governing the exchange between entrepreneurial ventures and their shareholders, workforces, and R&D partners, differ systematically across countries and how these institutional constellations facilitate the development of different types of entrepreneurship. From this paper, and several others in the literature (e.g., Hall and Jones 1999;Henrekson and Johansson 2009;Bjørnskov and Foss 2013), we may conclude that the rule of law is a necessary condition for the Entrepreneurial Society. However, any remedial suggestions must take current conditions into account.…”

The characteristics of family firms: exploiting information on ownership, kinship, and governance using total population data

“…13 In other words, our results show that family firms are not only the largest employers but also the single greatest source of value added in Sweden, indicating that family business is not the exception, as is often depicted, but rather the rule of economic activity. These numbers are particularly interesting considering that both businesses and wealth were highly taxed in Sweden during the 1960s, 1970s, and 1980s, which resulted in a considerable number of family firms migrating, being sold, or perishing Johansson 1999: Henrekson 2005;Henrekson and Johansson 2009). …”

“…The Swedish welfare state constitutes approximately one third of the economy and operates mainly within the domains of health care, education, and public administration. These markets were deregulated in the 1990s, but private entrepreneurship is still hampered by remaining regulations and competition from government actors (Henrekson and Johansson 2009). Consequently, we find relatively few family firms in these industries.…”

Varieties of entrepreneurship: exploring the institutional foundations of different entrepreneurship types through ‘Varieties-of-Capitalism’ arguments

“…Over the years, a consensus has emerged that formal and informal institutions incentivize individual behaviour (North 1990), thereby influencing the extent and character of an economy's entrepreneurial activity Stenholm et al 2013;Urbano and Alvarez 2014). Formal institutions that have been identified as particularly important for entrepreneurship include the protection of private property, tax codes, social insurance systems, employment protection legislation, competition policy, trade policies, capital market regulation, contract enforcement, as well as law and order (Hall and Jones 1999;Henrekson and Johansson 2009;Bjørnskov and Foss 2013). Informal institutions influencing entrepreneurship encompass social capital, trust, individualism, power distance, and uncertainty avoidance (Hechavarria and Reynolds 2009;Taylor and Wilson 2012).…”