Is there a risk of growing fast? The relationship between organic employment growth and firm exit

Abstract

Growing firms are the drivers of economic dynamics. While the existing literature often focuses on the average effect of growth on firm survival, we investigate how survival rates vary across the growth distribution using Dutch longitudinal firm-level data (1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012). We theorize and find a Ushaped relationship between organic employment growth and subsequent exit due to firm death in various model specifications. Low positive growth increases survival, too much growth could be harmful for some subgroups of firms, and the steepness of the U-shape depends on firm age, size, and industry.

Capacity constraints as a trigger for high growth

“…Given the short timescale for intervention, firms applying for such 3 The hiring of a first employee can be seen as a daunting, oncein-a-lifetime gamble, that effectively corresponds to a doubling of the firm's size. Indeed, rapid growth is risky and has been shown to increase the chances of failure Zhou and van der Zwan, 2019). Rapid growth is also linked to higher costs such as higher interest rates (Rostamkalaei and Freel, 2016).…”

Why do some SME's become high-growth firms? The role of employee competences

“…Yet, Zhou and van der Zwan (2019) investigate how high-growth firms handle business after the high-growth period, citing management theory of too-much-of-a-good-thing (TMGT) from Pierce and Aguinis (2013). The theory, following its name, states that too much is too much even if the object is a good one.…”

“…In economic terms, we could call this diminishing marginal utility from firm growth. As Zhou and van der Zwan (2019) explain, high growth requires new types of organizational competences to manage the size that the firm does not necessary possess. Further, Coad and Srhoj (2019) recognize the problem of HGFs to make revenues cover the expenses, as growth is paid long before the revenue.…”

“…1. Zhou and van der Zwan (2019) suggest that the management theory of too-much-of-a-good-thing (Pierce and Aguinis, 2013) might fit to the post-high-growth firms.…”

“…3. Due to Hölzl (2013) finding we expect a positive or insignificant relation in the estimation for previous high-growth control. Zhou and van der Zwan (2019) used another definition of high growth, which also means that different groups of HGFs are selected.…”