Growth and Survival Determinants of Chinese Private Firms: Fieldwork evidence and econometric estimates

Gavin Reid and Zhibin Xu

No 913, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: This paper reports on one of the first empirical attempts to investigate small firm growth and survival, and their determinants, in the Peoples’ Republic of China. The work is based on field work evidence gathered from a sample of 83 Chinese private firms (mainly SMEs) collected initially by face-to-face interviews, and subsequently by follow-up telephone interviews a year later. We extend the models of Gibrat (1931) and Jovanovic (1982), which traditionally focus on size and age alone (e.g. Brock and Evans, 1986), to a ‘comprehensive’ growth model with two types of additional explanatory variables: firm-specific (e.g. business planning); and environmental (e.g. choice of location). We estimate two econometric models: a ‘basic’ age-size-growth model; and a ‘comprehensive’ growth model, using Heckman’s two-step regression procedure. Estimation is by log-linear regression on cross-section data, with corrections for sample selection bias and heteroskedasticity. Our results refute a pure Gibrat model (but support a more general variant) and support the learning model, as regards the consequences of size and age for growth; and our extension to a comprehensive model highlights the importance of location choice and customer orientation for the growth of Chinese private firms. In the latter model, growth is explained by variables like planning, R&D orientation, market competition, elasticity of demand etc. as well as by control variables. Our work on small firm growth achieves two things. First, it upholds the validity of ‘basic’ size-age-growth models, and successfully applies them to the Chinese economy. Second, it extends the compass of such models to a ‘comprehensive’ growth model incorporating firm-specific and environmental variables.

Keywords: Chinese private firms; models of small firm growth; choice of location; customer orientation (search for similar items in EconPapers)
JEL-codes: D21 L25 L26 M13 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-bec, nep-ent, nep-fdg, nep-sbm and nep-tra
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Related works:
Working Paper: Growth and Survival Determinants of Chinese Private Firms: Fieldwork evidence and econometric estimates (2012)
Working Paper: Growth and Survival Determinants of Chinese Private Firms: Fieldwork evidence and econometric estimates (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:0913

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