How flexible are small firms? An analysis on the determinants of flexibility

Abstract

Although the standard microeconomic analysis is usually based on the assumption on the existence of a “representative firm”, it is known, as early as since the classical economists, that industrial economies are characterized by persistent heterogeneity among firms. One of the main sources of heterogeneity that is used to explain the vitality of small firms is flexibility. It is suggested that small firms are more flexible than large firms and, therefore, can survive in an uncertain environment. This paper studies four sources of flexibility (technology flexibility, labor flexibility, systemic flexibility, and dynamic flexibility) in Turkish manufacturing industries. The main source of small firm flexibility is found in the case of dynamic aspects, i.e., entry, exit and growth processes whereas there are no differences between small and large firms in other types of flexibility.