Are Large Firms Born or Made? Evidence from Developing Countries

54 Pages Posted: 20 Apr 2016

See all articles by Meghana Ayyagari

Meghana Ayyagari

George Washington University - School of Business

Asli Demirgüç-Kunt

World Bank

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business

Date Written: August 27, 2015

Abstract

This paper uses survey data from 120 developing countries to compare the role of institutions with firm characteristics at the time of creation of the firm in explaining the size, growth, and productivity of firms over their lifecycle. The study finds that firm-level characteristics have comparable, and sometimes even larger, power than institutional factors in predicting size and growth, but not productivity. In particular, size at birth plays a key role in predicting variation in firm size and growth since birth over the firm lifecycle, whereas country factors dominate in predicting variation in labor productivity over the firm lifecycle. The study also finds that older firms are larger, partly because of the selection of more efficient firms. The findings point to the importance of initial founding conditions in explaining variations in size and growth over the firm lifecycle across countries.

Keywords: Technology Industry, Technology Innovation

Suggested Citation

Ayyagari, Meghana and Demirgüç-Kunt, Asli and Maksimovic, Vojislav, Are Large Firms Born or Made? Evidence from Developing Countries (August 27, 2015). World Bank Policy Research Working Paper No. 7406, Available at SSRN: https://ssrn.com/abstract=2652544

Meghana Ayyagari (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Asli Demirgüç-Kunt

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business ( email )

Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2125 (Phone)
301-314-9157 (Fax)

HOME PAGE: http://scholar.rhsmith.umd.edu/vmax/home

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