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

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Author Info
Gavin C Reid

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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.

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Publisher Info
Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 9426.

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Date of creation: Oct 1994
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Handle: RePEc:san:crieff:9426

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Postal: School of Economics and Finance, University of St. Andrews, Fife KY16 9AL
Phone: 01334 462420
Web page: http://www.st-and.ac.uk/%7Ewww_crieff/discpaps.html

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Related research
Keywords: George Richardson; grounded theory; growth/profitability trade-off;

Find related papers by JEL classification:
D2 - Microeconomics - - Production and Organizations
L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Richard N. Langlois, 1995. "Capabilities and the Theory of the Firm," Industrial Organization 9503002, EconWPA. [Downloadable!]
  2. Richardson, G B, 1972. "The Organisation of Industry," Economic Journal, Royal Economic Society, vol. 82(327), pages 883-96, September. [Downloadable!] (restricted)
  3. Gavin C Reid & Lowell R Jacobsen., . "The Small Entrepreneurial Firm," Hume Papers 8, David Hume Institute.
  4. Dobson, Stephen M & Gerrard, Bill J, 1989. "Growth and Profitability in the Leeds Engineering Sector," Scottish Journal of Political Economy, Scottish Economic Society, vol. 36(4), pages 334-52, November.
  5. Reid, Gavin C, 1995. " Early Life-Cycle Behaviour of Micro-firms in Scotland," Small Business Economics, Springer, vol. 7(2), pages 89-95, April.
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  6. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-74, August. [Downloadable!] (restricted)
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  7. Slater, Martin, 1980. "The Managerial Limitation to the Growth of Firms," Economic Journal, Royal Economic Society, vol. 90(3593), pages 520-28, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bernadette Power & Gavin C Reid, 2003. "Turbulence, Flexibility and Performance of the Long-lived Small Firm," Tinbergen Institute Discussion Papers 03-039/3, Tinbergen Institute. [Downloadable!]
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