Limit's to a Firm's Rate of Growth: the Richardsonian View and its Contemporary Empirical Significance

Gavin Reid

CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: The work of the Oxford Economic Research Group under the chairmanship of George Richardson is taken as the starting point for a new analysis of the limits to small firm growth. Following Richardson's emphasis on costs of organisational change within the growing firm, caused by the need to train and assimilate new managerial recruits, a transactional efficiency explanation is developed emphasising three small business types: sole proprietorship; partnership; and private company. These types are identified from a contemporary database of new small firms, and their growth and performance characteristics are compared both by descriptive statistics and econometric evidence. The importance of business type to the growth/profitability trade-off relationship is confirmed, thus supporting Richardson's analysis. More complex organisational forms reduce short-term performance. A new finding is the additional importance of capital structure to this trade-off: higher geared firms experience lower growth and lower profits than lower geared firms. this effect can be explained by costs of debt servicing and exposure to risk.

Keywords: George Richardson; grounded theory; growth/profitability trade-off (search for similar items in EconPapers)
JEL-codes: D2 L2 M2 (search for similar items in EconPapers)
Date: 1994-10
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