Dynamics of Firm Profitability and Growth: Do Knowledge-Intensive (Business) Services Persistently Outperform?

Abstract

This paper explores the persistence of profitability and growth for firms operating in the Greek service sector, paying special attention to knowledge-intensive services (KIS) and knowledge-intensive business services (KIBS). The generalized method of moments is used on a rich panel of firms over a recent nine-year period. Quantile regressions are complementarily applied for KIS and KIBS industries. The key results from both growth and profit dynamics suggest that firms in KIS and KIBS industries persistently outperform firms in less knowledge-intensive service industries, pointing to strategic advantages of the former. Importantly, KIS and KIBS seem to be able to sustain their growth and profitability persistent trends even in times of crisis. Further insight into these issues is provided by the quantile analysis, the exploration of the profitability and growth inter-linkages, and the investigation of differences among various size groups in KIS and KIBS.

A Study on the Relationship between the Typology of Knowledge-Intensive Businesses (KIBs) and Performance Measurement Systems (PMS): Evidence from Taiwan

“…When they are small and middle enterprises, they have their own core competence for competition (Chen and Chen, 2016). Once the enterprises grow or earn profits, and then they often have enough capital for introducing external knowledge by strategic licensing (Giotopoulos, 2014). Hence, they would try to reduce R&D in-house and advance to knowledge integration.…”

“…When the absorptive capacity is high, the organization will create knowledge in-house. Otherwise, the organization will acquire knowledge from strategic licensing (Giotopoulos, 2014). This study formulates the hypothesis as follows:…”

“…Hurley and Hult (1998) also state that organizational learning is a key antecedent of innovation. Therefore, organizations are seen to manage knowledge which implies that any individual learning requires some substantiation of the essence of learning that leads to the accumulation of knowledge (Giotopoulos, 2014). The most relevant construct with regards to KIBs is absorptive capacity.…”

The contribution of industry to the Greek economy: facts and prospects

“…Finally, Giotopoulos (2014) examined the growth pattern (in turnover terms) of businesses providing knowledge intensive services (kis) and those providing knowledge intensive business services (kibs) by implementing the Generalised Method of Moments in a sample of 29,348 Greek companies from the Services sector for the period 2004-2012. He estimated that past growth of kis and kibs firms enhances their growth in the subsequent years, due to their characteristics such as accumulated know-how, high specialisation and innovation.…”

“…White 1982;Droucopoulos and Thomadakis 1993). Alternative econometric specifications were also applied, such as Tobit Model (Almus and Nerlinger 1999;Bosma et al 2004) and the Generalised Method of Moments (GMM) (Giotopoulos 2014). More recent studies used the method of Quantile Regression (e.g.…”