Is there a risk of growing fast? A study of the relationship between firm growth and firm exit

23 januari 2015

Fast-growing enterprises are considered to be the central drivers of job creation. Growing fast may, however, also be disadvantageous in the sense that firms may not be able to respond immediately to high employment growth in terms of making necessary changes to their organization and management structure. This may put the firm at risk of exiting due to firm death. Both from a theoretical and a policy perspective it is interesting to investigate the impact of a recent period of fast employment growth on the survival of the firm. Using data from the Dutch Business Register from Statistics Netherlands for the period 1999-2011, we have investigated the relationship between employment growth and the probability of exit due to firm death. Our main finding is that the relationship between employment growth rates and firm exit is different for firms with negative and positive employment growth. In the case of a decline in employment we find a negative relationship between employment growth and firm exit (a larger relative employment decline is associated with a higher likelihood of firm exit). In the case of enterprises with positive employment growth rates, growth rate and exit rate are however independent of each other. This study confirms the findings of a previous study, where we examined the same hypothesis using a different dataset and a different methodology. The fact that we find the same results, indicates that these findings are robust.

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Auteur(s): C.M. Hartog MSc, dr. ir. H. Zhou, dr. J.M.P. de Kok, dr. P.W. van der Zwan

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