High-growth Firms Research Articles

Unveiling the Role of Investment Tangibility on Financial Leverage: Insights from African-Listed Firms

The asset structure of a firm plays a pivotal role in determining its leverage. A higher proportion of physical assets is often associated with high debt ratios. This study explores the impact of investment tangibility on financial leverage, examining both tangible and intangible investments. Using a dynamic panel data model estimated through the two-step system generalized method of moments (GMM), we analyse a dataset encompassing 815 non-financial listed firms from 22 African stock markets. The results show that African firms have higher inclinations to invest in physical assets. We found a statistically significant negative relationship between leverage and tangible and intangible investments. The findings indicate that African firms tend to maintain lower leverages regardless of whether they invest in tangible or intangible assets. The observed relationship aligns with the hypothesis that high-growth firms, in their expansion efforts, strategically tend to opt for low debt to mitigate the agency costs associated with debt and to help prevent underinvestment. This outcome underscores the interconnected nature of financing and investment decisions. This research contributes to the literature on financial leverage and investment by dissecting investments into tangible and non-tangible components and highlighting their distinct impacts on leverage. Moreover, it provides empirical evidence for previously unexplored African firms, shedding light on the reasons behind the relatively low leverage levels observed in African firms.

Regional innovation networks & high-growth entrepreneurship

We investigate the influence of regional innovation networks (RINs) on high-growth entrepreneurship within the framework of the knowledge spillover theory of entrepreneurship (KSTE). While previous studies have separately examined RINs' role in knowledge diffusion and the geographical characteristics of high-growth firms, the connection between these two areas remains unexplored. To address this gap, we develop a conceptual model that highlights the positive impact of RINs on high-growth entrepreneurship, moderated by regional entrepreneurial capital. Using a unique longitudinal dataset at the metropolitan statistical area (MSA) level, we employ two-way fixed effects and instrumental variables regressions to analyze the data. Our findings support the conceptual model, revealing that robust RINs facilitate high-growth entrepreneurship. Additionally, we conduct post-hoc exploratory analyses to investigate potential moderating factors, including the influence of the public policy environment.

Venture Capital as a New Approach to Developing Early-stage Firms in Emerging Countries;

This study aims to extend our knowledge of the new approaches to entrepreneurial finance that inspire the development of early-stage firms in developing countries. The role of entrepreneurship is well understood internationally owing to its substantial influence on new employment creation, and productivity, and a seedbed for the emergence of innovative young firms. The survival and prosperity of the HGFs are unswervingly linked to access to sustained financing during their early-stage growth, nonetheless, access to funding remains the topmost worry for young firms. Yet VC financing has a competitive edge over banks burrowing, which cannot easily substitute for VC in its absence. We developed a multi-regression model to measure the results using survey data of 61 VC companies dealing with over 327 investment rounds from 2015-2021. The study confirms that VC investment has a dramatically flourishing prominence in nurturing early-stage firms with potential growth. Our study makes three major contributions to advancing this debate: First, our finding is expected to benefit the policymakers and civil society in the practice of creating new VC policies or altering existing ones to attract increased foreign VC investment in active countries and beyond. The government’s increased funding to the VC companies might lead to higher survival rates for new innovative industries as observed in the developed. Moreover, we discover that this research arena is recognized by a paucity of theoretical and empirical research underpinning VC’s proficiency in nurturing high-growth firms and innovative entrepreneurship.

Reflections on high growth firms

Scholars and practitioners have investigated high growth firms because a small number of high growth firms contribute disproportionately to economic development. However, we find that the standard perception and support programs of high growth firms are heavily geared toward to firms in the high-tech sector that seek venture capital investment and hyper growth. The authors in this paper conducted multiple research projects of high growth firms in Kansas City, St Louis, Indianapolis, Columbus, and Montana, and came to conclude that many high growth firms are sector agonistic, locally rooted, grow organically based on market niche, and exist in every city. This alternative model of high growth firms leads to a completely different set of policy and support implications, which we synthesize in eight points.

Environmental dynamics and corporate social responsibility: An empirical analysis based on Chinese manufacturing listed companies

Environmental dynamics is a significant situational factor affecting corporate strategic decisions. Taking China's listed manufacturing companies from 2010 to 2019 as a research sample, based on organizational ethics theory, this study explores the impact of environmental dynamics on corporate social responsibility (CSR). It analyses the impact of autonomy (CEO duality) and life experience (returnee CEO) of the CEO, the subject of CSR decision-making, on the above relationship. The study shows that firms in uncertain external environments will reduce CSR activities, i.e., the greater dynamic in the external environment, the worse the CSR performance, while CEO duality and returnee CEO will weaken the above relationship. Further study finds that amongst the four dimensions of CSR, environmental dynamics is negatively and significantly related to the remaining three dimensions, except for the technique (T) dimension. The weakening effect of CEO overseas study experience on the negative relationship between environmental dynamics and CSR is stronger. The negative impact between environmental dynamics and CSR is more significant in SOE groups. High-growth firms have a weakening effect on the negative relationship between environmental dynamics and CSR.

Corporate governance and earnings management: Evidence from Vietnamese listed firms

Using the hand-collected data of 800 Vietnamese non-financial firms from 2008 to 2018, this study constructs a comprehensive corporate governance index in alignment with the corporate governance code of best practices in Vietnam. We provide strong evidence that corporate governance quality restrains earnings management, measured by both the absolute and signed discretionary accruals and the real earnings management. In particular, the negative association between corporate governance quality and earnings management is more profound in private firms (non-SOEs), firms with high foreign ownership and low concentrated ownership, and high growth firms compared to their peers. The observed results are robust to alternative measures of discretionary accruals, total accruals andreal earnings management. Furthermore, the results are corroborated using instrumental variables, firm fixed effects and propensity score matching methods to address potential reverse causality and sample selection bias.

Thirty years of research on high-growth entrepreneurship: bibliometric overview of its H-Classics

In recent years, high-growth entrepreneurship (HGE) research has gained increasing importance. For this reason, it is considered necessary to analyze papers that have had the most significant impact on the development of the discipline and that should be familiar to all researchers. Building new knowledge on these works is important because it provides legitimacy and coherence to the future development of this research field. Thus, this paper aims to identify and characterize the classic articles in the field of HGE, a line of research that has seen significant growth in the last 30 years. The H-Classics method is used to identify these papers. Subsequently, several bibliometric aspects of this collection are analyzed, such as the forums of journals where they have been published, the most productive authors, the patterns of collaboration, and an analysis of the conceptual structure through co-word analysis. Exhaustive content analysis is carried out to complement this vision, identifying the proposed objectives, methodologies, types of data, analysis techniques used, and their main contributions in three consecutive periods. The results are of value to researchers interested in high-growth firms because they allow us to understand the foundations on which this discipline has been built through its classics and to determine its main challenges for the future.

Do winners pick government? How scale-up experience shapes entrepreneurs’ assessments of innovation policy mixes

AbstractHow do entrepreneurs of high-growth firms in small, open economies evaluate innovation policy mixes? In response to market consolidation by large firms, governments in such countries are using a mix of innovation policy tools to support firms with high-growth potential in digitally intensive sectors. Government objectives, however, are not being realized. Bringing actor-centric perspectives to the policy mix literature, we analyze interviews with entrepreneurs from Canadian technology firms to determine whether there is a disconnect between the objectives and instruments employed by the government. With distinct policy preferences rooted in their growth experiences specific to the country’s political economy, we find that scale-up entrepreneurs prefer a more active role of the government in the form of demand-side, direct, and targeted innovation instruments. The findings presented in this article provide a more nuanced understanding of the innovation policy landscape and the preferences of technology scale-up firms

From rapid decline to high growth: where in the distribution did COVID hit hardest?

PurposeThe authors explore how did the COVID shock hit European firms at the upper quantiles (high-growth superstars) and the lower quantiles (rapidly declining firms).Design/methodology/approachThe authors analyze the European Investment Bank Investment Survey (2016–2020). This exploratory paper applies graphical techniques and quantile regression to evaluate the COVID shock along the growth rates distribution.FindingsRegarding growth of sales and growth of value added, COVID had a negative effect on growth across the growth rates distribution. The negative COVID effect is larger at the lower quantiles. Employment growth shows no effect for many firms that have zero employment growth, but at the extreme quantiles, the authors can observe that some declining firms were adversely affected by COVID. For labour productivity growth, the COVID effect is small. Analysis of subsamples, and quantile regressions with interaction terms, emphasize that firms receiving policy support were relatively strongly affected by COVID, consistent with interpretations that COVID policy support was reaching the intended recipients. Finally, fully digitalized firms may have been somewhat shielded from the harmful effects of COVID.Originality/valueFirst, previous studies have focused on the average effect of COVID on the growth performance. Our research contributes to understanding how the COVID shock affected the entire growth rates distribution, ranging to high-growth firms and declining firms. Second, governments devoted financial support to firms. Our analysis explores if COVID policy support was given to companies more affected by this shock. Third, previous digitalization may have boosted resilience by shielding firms from COVID’s harmful effects on firm growth.

FDI and productivity: facts versus fiction of high growth

PurposeThis paper aims to study the role of foreign direct investment (FDI) channels in improving local firms' productivity. Two transmission channels of knowledge spillovers are empirically investigated. The study focuses on the role of high-growth firms (HGFs) that are assumed to have a higher absorptive capacity.Design/methodology/approachA threshold regression model that considers country and sector fixed effects is applied to investigate 8525 firms across 50 sectors in 12 developing countries in the East Asia and Pacific (EAP) region.FindingsThe author's findings indicate that first, larger firms with external market linkages are more productive. Second, high-growth enterprises are powerful engines of job creation; however, the firms do not outperform other firms in terms of capacity in absorbing FDI spillovers and do not have higher productivity.Research limitations/implicationsThe findings highlight the necessity of rethinking public policy priorities to support firm growth. Policies to maximize the gains from FDI spillovers are discussed.Originality/valueThis is the first study to investigate the strength of FDI spillover channels across different sectors, and the channels' impact on the productivity of local enterprises in the EAP region. This study also explores the potential role of high-growth firms (HGFs) in this interaction via job creation and improving output growth rate.

How to secure an innovation grant for firms in new industries? Gender and resource perspectives

PurposeResearch on financing for entrepreneurship has consolidated over the last decade. However, one question remains unanswered: how does the combination of external finance, such as equity and debt capital, and internal finance, such as working capital, affect the likelihood of grant funding over time? The purpose of this study is to analyse the relationship between different sources of financing and firms' ability to fundraise via innovation grants and to examine the role of female chief executive officer (CEO) in this relationship. Unlike equity and debt funding, innovation grants manifest a form of innovation acknowledgement and visibility, recognition of potential commercialization of inovation.Design/methodology/approachThe authors use firm-level financial data for 3,034 high-growth firms observed in 2015, 2017 and 2019 across 35 emerging sectors in the United Kingdom (UK) to test the factors affecting the propensity of high-growth firms to secure an innovation grant as a main source of fundraising for innovation during the early stages of product commercialization.FindingsThe results do not confirm gender bias for innovation fundraising in new industries. This contrasts with prior research in the field which has demonstrated that access to finance is gender-biased. However, the role of CEO gender is important as it moderates the relationship between the sources of funding and the likelihood of accessing the grant funding.Research limitations/implicationsThis study does not analyse psychological or neurological factors that could determine the intrinsic qualities of male and female CEOs when making high-risk decisions under conditions of uncertainty related to innovation. Direct gender bias with regards to access to innovation grants could not be assumed. This study offers important policy implications and explains how firms in new industries can increase their likelihood of accessing a grant and how CEO gender can moderate the relationship between availability of internal and external funding and securing a new grant.Social implicationsThis study implicates and empirically demonstrates that gender bias does not apply in fundraising for innovation in new industries. As female CEOs represent various firms in different sectors, this may be an important signal for investors in new product development and innovation policies targeting gender bias and inclusion.Originality/valueThe authors draw on female entrepreneurship and feminist literature to demonstrate how various sources of financing and gender change the likelihood of grant funding in both the short and long run. This is the first empirical study which aims to explain how various internal and external sources of finance change the propensity of securing an innovation grant in new industries.

Tangible and intangible investments and sales growth of US firms

This article presents new insights into the evolving relation among different types of investments and the growth in sales of US nonfinancial listed firms during the 1979–2018 period. By means of quantile regressions, it is observed an increasing relevance over time of intangible investments vis-à-vis a stable or declining contribution of capital expenditure for all types of firms. However, the impact of different types of intangible investment differs depending on the kind of firm. Whereas advertising has a growing relevance on all types of firms except the top decile in growth distribution, the positive effects of research and development become increasingly concentrated in high-growth firms.

Impact of Regulations on Firm Value: Evidence from the 2016 U.S. Presidential Election

Abstract Using the 2016 U.S. presidential election result as a shock to the expectations about the future regulatory environment, I find that most regulated firms earned approximately 4% higher cumulative abnormal stock returns than least regulated firms during the first 10 trading days after the election. Exploring economic mechanisms, I find evidence consistent with the explanation that more regulations disproportionately harm high-growth firms and allow incumbent firms to extract rents through lower competition and political favoritism. Stock returns are also followed by a shift in firm fundamentals over 3 years after 2016, consistent with the economic mechanisms.

In search of gazelles: machine learning prediction for Korean high-growth firms

In search of gazelles: machine learning prediction for Korean high-growth firms

Entrepreneurial ecosystems and regional persistence of high growth firms: A ‘broken clock’ critique

The Entrepreneurial Ecosystems (EE) approach makes specific predictions regarding how EE inputs are converted into high-growth firms (HGFs) as an output. A simulation model draws out our hypothesis of regional persistence in HGF shares. Based on intuitions that EEs are persistent, we investigate whether regional HGF shares are persistent, using census data for 2 European countries taken separately (Croatia for 2004–2019, and Slovenia for 2007–2019). Overall, there is no clear persistence in regional HGF shares – regions with large HGF shares in one period are not necessarily likely to have large HGF shares in the following period. This is a puzzle for EE theory. In fact, there seems to be more persistence in industry-level HGF shares than for regional HGF shares. We formulate a ‘broken clock’ critique – just as a broken clock is correct twice a day, EE recommendations may sometimes be correct, but are fundamentally flawed as long as time-changing outputs (HGF shares) are predicted using time-invariant variables (such as local universities, institutions, investments in R&D and infrastructure).

High-Growth Middle-Sized Firms’ Performance During the Pandemic (Russian Case)

The COVID-19 pandemic is a substantial challenge for national economies. The survivability and better performance of some companies can serve as lessons for others, and those who learn the said lessons faster will take the lead in the post-COVID world. One of the national economic development drivers is high-growth firms (HGFs), also known as gazelles. High-growth middle-sized firms (HGMFs) have a notable impact on the national economy as significant employers, producers, and tax-payers. This paper aims to find the peculiarities in the reactions of HGMFs to the COVID-19 pandemic based on Russian firms’ data. This research uses the official statistics of middle-sized Russian firms (7944 firms, 238 gazelles). Gazelles are identified based on 2016–2019 data and then compared with normal medium-sized firms (NMFs) using 2020 data. In total, 14 hypotheses are formulated and tested, with those hypotheses focused on five aspects of firms’ performance: the ability to grow, profitability, efficiency, solvency, and employability. The research utilizes a one-way ANOVA test and Z-test for proportions for different types of hypotheses. Hypotheses testing shows that HGFs demonstrate better ability to grow, better efficiency, better solvency, and better employability than normal firms. However, they cannot maintain their higher profitability in 2020, despite higher net income values in comparison with other companies. The research confirms that HGMFs have unique capabilities to overcome these kinds of crises, and that such capabilities can be scaled to other business entities to increase their survivability in times of future crises. The research can be extended to small firms, 2021-year data analysis, and comparative cross-industry or cross-country analysis.

The effects of political connections on entrepreneurial venture operations, employee productivity and investment decisions

PurposeThis study aims to examine the effect of political connection on operational efficiencies in the case of small and medium enterprises (SMEs) and to discover the channel through which political ties affect a firm's decision-making process.Design/methodology/approachFollowing the scope of the study, panel fixed effect has been adopted to explore the impact of political connection on a firm's operational efficiencies. The data were collected every two years from 2005 to 2015 from SMEs in Vietnam under the collaboration of the Central Institute for Economic Management (CIEM), the Institute of Labor Science and Social Affairs (ILSSA) and the Development Economics Research Group (DERG) of the University of Copenhagen (Denmark).FindingsThe results suggest that political connection has a significantly negative effect on both investment efficiencies and employee productivity. Significantly, the impact of political connections on employment decisions is more significant than it is on investment decisions. Furthermore, the findings also indicate that high-growth firms experience the interference of political connection in the decision-making process less often than their low-growth peers.Originality/valueThis paper provides some empirical evidence of the negative impact of political connections on a firm's operational efficiencies. It analyzes the channels through which political connection influences a firm's operational efficiencies. Providing empirical evidence demonstrates a dimension to capture the negative side of the political link to small and medium enterprises in developing economies.

The impact of an accelerated depreciation tax policy on employment: Evidence from China

We examine the impact of an accelerated depreciation tax policy (ADP) on employment. As a tax incentive policy, we expect an ADP to impact firm behavior significantly, but its effect on employment remains uninvestigated. Leveraging the two-stage implementation of an ADP in selected industries in China in 2014 and 2015 and using a difference-in-differences research design, we find that: 1) the ADP significantly increases employment, which is consistent with the output effect hypothesis; and 2) the ADP increases firms’ labor demand, mainly by stimulating investment in fixed assets and easing their financial constraints. Additional analysis suggests that the impact of ADP on employment is more salient for small firms, non-state-owned firms, and high growth firms, and skilled labor employment, indicating that the ADP is more effective for firms with high financial constraints and hiring skilled labor to accompany the increase in capital investment.

Extraction of Important Factors in a High-Dimensional Data Space: An Application for High-Growth Firms

We introduce a new non-black-box method of extracting multiple areas in a high-dimensional big data space where data points that satisfy specific conditions are highly concentrated. First, we extract one-dimensional areas where the data that satisfy specific conditions are mostly gathered by using the Bayesian method. Second, we construct higher-dimensional areas where the densities of focused data points are higher than the simple combination of the results for one dimension, and then we verify the results through data validation. Third, we apply this method to estimate the set of significant factors shared in successful firms with growth rates in sales at the top 1% level using 156-dimensional data of corporate financial reports for 12 years containing about 320,000 firms. We also categorize high-growth firms into 15 groups of different sets of factors.

Scaling‐up: Building, Leading and Sustaining Rapid Growth Over Time

AbstractEven as research on scaling and high growth firms (HFGs) is gaining momentum, the corpus of accumulated research remains largely fragmented and dispersed, with little in the way of a central conceptual foundation or ‘theoretical true north’ to guide empirical development. This Special Issue provides a forum for works that push the theoretical and empirical frontiers of research on scaling and HGFs. We provide a multi‐dimensional conceptualization that recognizes scaling as a dynamic capability entailing routines and processes for expansion, replication, and synchronization. We also present a typology that specifies the multiple types of HGFs. Inspired by the four studies published in the special issue, we finally outline five priorities for future research.