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The Dynamics of the Growth of Firms: Evidence from the Services Sector

Author

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  • Blandina Oliveira

    (ESTG, Instituto Politécnico de Leiria)

  • Adelino Fortunato

    (GEMF and Faculdade de Economia, Universidade de Coimbra)

Abstract

Using a dynamic panel data model with serial correlation in the error term, the purpose of this paper is to examine if Gibrat’s law can be rejected for the services sector as it has been for manufacturing. The aim of this paper is also to improve the understanding of the empirical determinants of firm growth by extending the literature to include a new variable related to foreign participation. In addition, and based on recent developments in the growth of firms, our analysis also includes the role of the financial structure. The sample used is an unbalanced panel data set that includes all size classes, including the smallest surviving firms, from the Portuguese service sector over the period from 1995 to 2001. Applying the GMM-system and pooled OLS estimators our findings suggest that Gibrat’s law is rejected for services firms. In addition, the results also indicate that firm growth is mainly explained by firm size and age. These results have significant policy implications.

Suggested Citation

  • Blandina Oliveira & Adelino Fortunato, 2005. "The Dynamics of the Growth of Firms: Evidence from the Services Sector," GEMF Working Papers 2005-04, GEMF, Faculty of Economics, University of Coimbra.
    • Handle: RePEc:gmf:wpaper:2005-04
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    3. Jan Bentzen & Erik Madsen & Valdemar Smith, 2012. "Do firms’ growth rates depend on firm size?," Small Business Economics, Springer, vol. 39(4), pages 937-947, November.
    4. Ioannis Giotopoulos & Georgios Fotopoulos, 2010. "Intra-Industry Growth Dynamics in the Greek Services Sector: Firm-Level Estimates for ICT-Producing, ICT-Using, and Non-ICT Industries," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(1), pages 59-74, February.
    5. Florian Léon, 2022. "The elusive quest for high-growth firms in Africa: when other metrics of performance say nothing," Small Business Economics, Springer, vol. 58(1), pages 225-246, January.
    6. Canarella, Giorgio & Miller, Stephen M., 2018. "The determinants of growth in the U.S. information and communication technology (ICT) industry: A firm-level analysis," Economic Modelling, Elsevier, vol. 70(C), pages 259-271.
    7. Ellen Cristina Baradel & Fabiano Guasti Lima & Alexandre Assaf Neto, 2016. "Growth Potential of Publicly Traded Brazilian Companies: Accounting and Market Overview," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 2(2), pages 123-148, April.
    8. Florian Leon, 2019. "The elusive quest for high- growth firms in Africa: The (lack of) growth persistence in Senegal," Working Papers hal-02493326, HAL.
    9. Gavin Reid & Zhibin Xu, 2012. "Generalising Gibrat: using Chinese evidence founded on fieldwork," Small Business Economics, Springer, vol. 39(4), pages 1017-1028, November.
    10. Jean Bosco Harelimana & Beline Mukarwego, 2021. "Service Sector as an Engine of Growth: Empirical Analysis of Rwanda," Business and Management Studies, Redfame publishing, vol. 7(2), pages 47-59, June.
    11. Neven Ivandić, 2015. "Gibrat's Law and the Impact of Ownership: A Case Study of Croatia's Hotel Industry," Tourism Economics, , vol. 21(1), pages 105-120, February.
    12. Uwitonze, Eric & Heshmati, Almas, 2016. "Service Sector Development and its Determinants in Rwanda," IZA Discussion Papers 10117, Institute of Labor Economics (IZA).
    13. Horácio Faustino & Nuno Carlos Leitão, 2005. "The Intra Industry Trade between Portugal European Union, Portugal Spain, Portugal-France, Portugal Germany, Portugal-Ireland, Portugal-Greece and Portugal-Netherlands - a Dynamic Panel Data Analysis ," ERSA conference papers ersa05p23, European Regional Science Association.
    14. Sven-Olov Daunfeldt & Daniel Halvarsson, 2015. "Are high-growth firms one-hit wonders? Evidence from Sweden," Small Business Economics, Springer, vol. 44(2), pages 361-383, February.
    15. Stephanie Reitzinger & Astrid Pennerstorfer, 2021. "The size–growth relationship in the social services sector in Austria," Service Business, Springer;Pan-Pacific Business Association, vol. 15(3), pages 445-466, September.
    16. Francisco Rodrigues & Nuno Tavares & Gabriel Osório Barros, 2021. "Drivers of exceptional job creation – a dynamic probit approach using portuguese firm-level data," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 20(1), pages 45-69, January.
    17. Alen Host & Vinko Zaninoviæ & Petra Adelajda Mirkoviæ, 2018. "Firm-level intra-industry links in Croatia’s tourism industry," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(1), pages 243-262.
    18. Junho Na & Jeong-dong Lee & Chulwoo Baek, 2017. "Is the service sector different in size heterogeneity?," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 12(1), pages 95-120, April.
    19. Cristiana Donati, 2017. "Service industries, growth dynamics and financial constraints," The Service Industries Journal, Taylor & Francis Journals, vol. 37(3-4), pages 190-205, March.
    20. Molinari, Massimo, 2013. "Joint analysis of the non-linear debt–growth nexus and cash-flow sensitivity: New evidence from Italy," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 34-44.

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    More about this item

    Keywords

    Firm growth; Panel data; GMM estimators; Services;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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