Diffusion and Imitation of Growth Strategies in Firm Clusters M. Gabriela Contreras October 2010

Outline Introduction Research Question Vocabulary Data & Methodology Expected Challenges Questions & Feedback

Introduction Rejuvenation of firm growth studies Beyond Gibrat's Law Existing literature focuses on factors (variables) driving firm growth. Focus on the how not the what

Introduction Firms are typically understood as profit maximizers However, firms may depart from this strategy and become “conformists.”  Imitation  Changing strategies when profts fall below a certain threshold

Hypotheses & Assumptions AI) Firms are not profit maximizers. A2)Firms have little information of the consumer demand function of their competitors HI) Firms imitate growth strategies of other firms within a cluster. HIa) Firms imitate growth strategies of well- performing firms within a cluster 

Vocabulary Firm- a small high- tech business with one or more branches. Cluster- a regional agglomeration of firms or firm heardquarters. Growth strategy- the method through which a firm decides to grow, such as an increase in number of FTEs, mergers & acquisitions. Well- performing strategy- a growth strategy that leads to a higher survival rate of a firm.

Data & Methodology Data & Scope Firm- level performance data for small high-tech firms in Silicon Valley, CA Number of employees Mergers and acquisitions Profits Sources Kauffman Database Bureau of Labor Statistics Small Business Advocacy

Data & Methodology Methodology Imitation of a growth strategy Bayesian Networks Causality of a firm engaging in a growth strategy Success of a growth strategy* Survival Analysis Model Censor on firm growth strategy Probability of “death” of a firm given a set of time- dependent covariates * First pass is to evaluate plain imitation behavior

Expected Challenges Data availability:  Kauffman data available for 3 years No geographical identifiers  LEEM Database is not accessible Best database out there! Cohort choice  Based on expected data availability  Geography- based clusters of industries

Questions for the Audience Data sources Methodology On-going related work?

Questions

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