Firm growth and the illusion of randomness

Derbyshire, James; Garnsey, Elizabeth

doi:10.1016/j.jbvi.2014.09.003

Cited by 24 publications

(18 citation statements)

References 11 publications

(14 reference statements)

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“…This paper prompted a series of exchanges – Derbyshire and Garnsey ( 2014 ), Coad et al ( 2015 ), Derbyshire and Garnsey ( 2015 ) – which, although ending somewhat inconclusively, did help to identify the extent and nature of the common ground between “randomness and strategy” (see Stam ( 2010 ) quoted above). By so doing it serves to produce a clearer understanding of some of the issues involved in the theory of firm growth.…”

Section: The Literature and Methodsmentioning

confidence: 99%

“…The first is that it is an indeterminate process equivalent to gambling. The second is that it is adeterministic process involving the iterative matching of internal firm resources to external opportunities, requiring entrepreneurial skill and effort but subject to deterministic chaos rendering prediction impossible.” Derbyshire and Garnsey ( 2014 , p. 11) Although Derbyshire and Garnsey clearly believe that deterministic chaos can be sharply distinguished from the outcome of ‘gambling’, this may not be straightforward. Considerable efforts have been devoted over quite a number of years to detect chaotic behaviour in economic time series (broadly comparable in character to growth in a population of firms), indeed there still does not seem to be agreement about the appropriate test (see Faggini ( 2014 ) for a recent survey).…”

Section: The Literature and Methodsmentioning

confidence: 99%

Section: The Literature and Methodsmentioning

confidence: 99%

“…In the literature on stochastic processes ‘Gambler’s Ruin’ (typically referred to as a ‘problem’ rather than a ‘theory’) is (as Coad et al) note a variety of (one dimensional) random walk, which is in turn a particular kind of markov chain. 8 So if we re-cast a firm growth model as a markov chain defined on a discrete state space – growth, no change, decline – we can in, fact encompass both Derbyshire and Garnsey ( 2014 ) and Coad et al ( 2015 ), within a unified framework. It is also worth noting that by talking about a sequence of categorical states both Coad et al and Derbyshire and Garnsey have (albeit implicitly) agreed to talk about firm trajectories rather than growth per se .…”

Section: The Literature and Methodsmentioning

confidence: 99%

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All grown up? The fate after 15 years of a quarter of a million UK firms born in 1998

Anyadike-Danes

Hart

2018

J Evol Econ

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The theory of firm growth is in a rather unsatisfactory state. However, the analysis of large firm-level datasets which have become available in recent years allows us to begin building an evidence base which can, in turn, be used to underpin the development of more satisfactory theory. Here we study the 239 thousand UK private sector firms born in 1998 over their first 15 years of life. A first, and quite striking, finding is the extraordinary force of mortality. By age 15, 90% of the UK firms born in 1998 are dead, and, for those surviving to age 15, the hazard of death is still about 10% a year. The chance of death is related to the size and growth of firms in an interesting way. Whilst the hazard rate after 15 years is largely independent of size at birth, it is strongly affected by the current (age 14) size. In particular, firms with more than five employees are half as likely to die in the next year as firms with less than five employees. A second important finding is that most firms, even those which survive to age 15, do not grow very much. By age 15 more than half the 26,000 survivors still have less than five jobs. In other words, the growth paths – what we call the ‘growth trajectories’ – of most of the 26,000 survivors are pretty flat. However, of the firms that do grow, firms born smaller grow faster than those born larger. Another striking finding is that growth is heavily concentrated in the first five years. Whilst growth does continue, even up to age 15, each year after age five it involves only a relatively small proportion of firms. Finally, there are two groups of survivors which contribute importantly to job creation. Some are those born relatively large (with more than 20 jobs) although their growth rate is quite modest. More striking though, is a very small group of firms born very small with less than five jobs (about 5% of all survivors) which contribute a substantial proportion (more than one third) of the jobs added to the cohort total by age 15.

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Section: The Literature and Methodsmentioning

confidence: 99%

Section: The Literature and Methodsmentioning

confidence: 99%

Section: The Literature and Methodsmentioning

confidence: 99%

Section: The Literature and Methodsmentioning

confidence: 99%

See 2 more Smart Citations

All grown up? The fate after 15 years of a quarter of a million UK firms born in 1998

Anyadike-Danes

Hart

2018

J Evol Econ

View full text Add to dashboard Cite

show abstract

“…Therefore, according to this study, even though firm growth is not a pure random walk, chance is the most dominant component. This account was disputed by Derbyshire and Garnsey (2014) who wrote that Coad and colleagues' result was an artefact of measurement and that comparing entrepreneurship to indeterminate processes such as gambling was incorrect and counterproductive. The concept of deterministic chaos in complexity science provides an explanation for the failure to identify factors that are closely linked to firm performance.…”

Section: Other Considerationsmentioning

confidence: 99%