Firm size and growth barriers: a data-driven approach

Johan Karlsson

doi:10.1007/s11187-020-00350-y

Abstract

This article aims to capture the relationship between perceived growth barriers and firm size. This aim is pursued by developing a novel data-driven identification strategy that assigns firm size groups based on their statistical relationships to perceived growth barriers. The analysis is undertaken using data for approximately 44,000 Swedish SMEs (0–249 employees) for 2011, 2014, and 2017. The results suggest that small firms typically face constraints on equity financing, whereas larger firms face barriers regarding competition and recruitment. As a benchmark, the performance of the developed method is compared with prevailing strategies that use ad hoc firm size groups. The findings show that ad hoc groups fail to accurately capture size thresholds at which firms incur barriers, and they yield a consistently lower model fit compared with the method proposed here. Consequently, there may be a need for methodological rethink in the field regarding the treatment of firm size.

Highlights

In recent decades, research on small business has moved from receiving sparse attention to becoming a recognized academic field
Thereafter, the discussion is narrowed to barriers that have strong relationships to firm size, where estimates are compared with those yielded using a continuous estimator, the OECD (2005) definition and the World Bank (2001) definition of firm size
This article shows that perceptions of firm growth barriers differ considerably across firm size

Summary

Introduction

Research on small business has moved from receiving sparse attention to becoming a recognized academic field. Firm growth is thought to be inhibited by constraints on management, liquidity, and financing as well as access to skilled labor (e.g., Penrose 1959; Storey 1994; Audretsch and Elston 2002; Nyström and Elvung 2014; Palazuelos et al 2018). These issues risk being exacerbated by institutional constraints (e.g., Henrekson and Johansson 1999; Bornhäll et al 2017). There is limited empirical evidence on the relationship between growth barriers and firm size

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Results

Conclusion