Determinants of Small Firm Growth: An Exhaustive Analysis Using Conceptual and Statistical Approaches

Abstract

Firm growth is a recurring topic in the field of management and entrepreneurship research. Over the last two decades, determinants of firm growth have been studied to explain variations in growth rates from a broad array of disciplines. Nevertheless, it is observed that accumulated knowledge of firm growth is still limited. The field of study is fragmented because different disciplines produce diverse sets of determinants; however, none of them can be used as a common set of growth predictors. This paper aims to provide an exhaustive analysis on the determinants of firm growth using both conceptual and statistical approaches. Applying factor analysis on a Dutch firm-level data set that includes many known determinants of firm growth from existing literature, we create determinants that are in line with their conceptual constructs (conceptual approach). We also empirically validate the conceptual constructs of these known determinants using a statistical approach where independent variables are grouped into common factors solely on statistical grounds. Finally, using an inclusive model consisting of known determinants from various categories, we are able to identify the most important determinants of firm growth: the individual's growth motivation and specific (technical) skills, firm age, past financial performance of the firm and the firm's entrepreneurial-growth orientation. We suggest that these determinants can serve as a common set of determinants to develop a more systematic analysis on the determinants of firm growth in future research.

Keywords: firm growth, growth determinants, individual determinants, organizational determinants, environmental determinants, Dutch firm-level data