Abstract
The paper reports on the behaviour of young (less than three years old) micro-firms (less than ten employees) in Scotland, with an emphasis on life-cycle effects. Two main tests were carried out. The first took Gibrat's Law (that growth is independent of size) as the null hypothesis, and a life-cycle effects model as the alternative. The Gibrat's Law model was rejected in favour of the life-cycle model. Smaller micro-firms grow faster than larger micro-firms. Robust nonlinear variants of the life-cycle model were discussed and shown to display stable equilibrium characteristics which were consistent with the sample evidence. The second took a Classical simultaneous equations model as the null hypothesis, for which growth and profitability were mutually reinforcing. A Managerial model was set up as the alternative for which growth and profitability were in a trade-off relationship. The Classical model was rejected in favour of the Managerial. In the short-run, young micro-firms experience a trade-off between profitability and growth. The Managerial model was shown to imply a stable equilibrium, with characteristics consistent with sample evidence.
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Professor in Economics, and Director of the Centre for Research into Industry, Enterprise, Finance and the Firm (CRIEFF), University of St Andrews. An earlier version of this paper was read to the ESRC Urban and Regional Economics Study Group conference at Craigie College, University of Paisley, Ayr on 6 January 1994. Thanks are due to the participants for comments made, without in any way implicating them in errors of omission or commission that this article may yet contain.
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Reid, G.C. Early life-cycle behaviour of micro-firms in Scotland. Small Bus Econ 7, 89–95 (1995). https://doi.org/10.1007/BF01108684
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DOI: https://doi.org/10.1007/BF01108684