Firm Size Evolution and Outsourcing

Sasan Bakhtiari

No 2013-07, Discussion Papers from School of Economics, The University of New South Wales

Abstract: This paper sheds new light on forces shaping the outsourcing decision by linking the decision to a certain form of non-linearity in overhead costs which divides a firm’s operation into small and large regimes. Marginal firms that find evolution into a large business too costly outsource in a bid to grow out of bounds instead of expanding internally. This process leads to a lumpy relationship between size and outsourcing, in which outsourcing is only practiced by narrow set of firms in the middle of the distribution. The theoretical implication for size distribution is a bunching of firms at the size where the transition to large regime takes place with a missing middle immediately following it. A panel of Australian small and medium-size firms is used to put the predictions to test with mostly supportive results. The findings open a new avenue to rethink growth and job creation amongst small businesses.

Keywords: Small Business; Outsourcing; Management Organization; Size Distribution. (search for similar items in EconPapers)
JEL-codes: C38 D2 L24 L6 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2013-07
New Economics Papers: this item is included in nep-bec, nep-cse and nep-sbm
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