Most influential surveys on intra-industry firm dynamics (Geroski, 1995; Sutton, 1997; and Caves, 1998) have reached the conclusion from a large body of empirical evidence that firm growth decreases with size and age. However, virtually all of these studies are based on manufacturing industry. One of the greatest impediments to examine this relationship on non-manufacturing industry has been the lack of access to longitudinal data sets.
Recently, few empirical studies have been based on large scale services such as banking (Tschoegl, 1996; Vander Vennet, 2001) and insurance industries (Hardwick and Adams, 1999). Small scale services, in particular the hospitality sector, were also considered by Audrestch et al. (2004) and Piergiovanni et al. (2003) for Netherlands and Italy, respectively. Notwithstanding, whether the dynamics of firm growth for the services sector simply mirrors that in manufacturing industry is still an open-ended question where little is known but has significant policy implications.
Our work contributes to this strand of research on methodological issues and sample used. We apply dynamic panel data techniques, GMM-System, recently developed by Blundell and Bond (1998), to examine and to compare whether Sutton’s (1997) statistical regularities and Geroski’s (1995) stylized result for the validity of Gibrat’s Law based on evidence from manufacturing industry holds for services sector. Moreover, we analyze the determinants of firm growth for services sector and compare the results with manufacturing. Systematic differences in the size-growth relationship between manufacturing and services may reflect underlying structural differences shaping the dynamics of industrial organization in these services in a way that is fundamentally different from that in manufacturing (Audretsch et al., 2004). Another difference between this study and the previous similar studies is that our panel data sets include both large and small scale firms, including micro-firms.
The plain of the paper is as follow. The next Section presents the survey of the theoretical literature and empirical evidence on firm growth. Section 3 outlines the theoretical model commonly used to summarize the growth process. In Section 4 the panel data sets and the summary statistics are described, whilst in Section 5 the empirical findings yielded by the GMM-SYS estimator are displayed and discussed. The final section contains the conclusions drawn and some further remarks.
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Empirical Evidence on Determinants of Firm Growth: Are the Services Different?
