Small Businesses and Firm Growth

Abstract

This study explores answers to the question—what are the drivers of firm growth? The authors used the World Bank’s Management, Organization and Innovation (MOI) survey data collected on a sample of 1777 firms in 12 countries, which include Belarus, Bulgaria, Kazakhstan, Lithuania, Poland, Romania, Russia, Serbia, Ukraine, Uzbekistan, and Germany. The analyses are focused on 905 small to medium sized firms that are initially fewer than 500 employees and founded after 1960. The dependent variable, firm growth was measured using the increase in the number of full time employees. The authors applied multilevel analyses using country as the grouping variable. The analyses of this article generated interesting results. First, whether the firm is/was partially owned by the state is not significantly related to firm growth, suggesting institutional effects are limited. Second, whether the managing director is also the founder of the business does not have significant effect on firm growth. Third, it can be found that firm age is a significant factor in firms’ growth such that younger firms grow faster. Fourth, in terms of organizational structure, the authors found that the changes in the number of levels between the frontline employee and the top managers in the last three years is significantly negatively related to firm growth suggesting a stable organizational structure helps firm growth. Lastly, in terms of organizational hierarchy, it can be found that the number of levels between top manager and a typical frontline employee is marginally positively related to firm growth, suggesting that a multilayered structure may assist firm growth.