A Model of Firm Growth
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Publication date: 2011-12-31
GNPJE 2011;252(11-12):31-45
International statistics show that small firms are the dominant form of business enterprise today. Yet, despite ongoing research into the theory of the firm, there is still no common view on the mechanisms of firm growth. This article aims to stimulate further theoretical and empirical research into firm growth. In the first part of the paper, the author reviews the most seminal theories of the growth of the firm to date, noting that there are two broadly perceived schools of thought within the analysed field. The first approach advocates a more or less stochastic pattern of firm growth. The second research school holds that the resources at the firm’s disposal are the differentiators, drivers of, but also limits to, firm growth. In the second part of the paper, based on the literature review and deduction, the author develops an alternative model of firm growth. Building on the properties of the Markovian processes, he shows that it may be because of the seemingly rational behaviour of firm incumbents that most firms do not grow in size beyond some satisfying level. The proposed model of firm growth is equally applicable to firms of all sizes operating in all industries and markets.
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