| Abstract: |
Diverse theories of industry dynamics predict heterogeneity in production
efficiency to be the driver of firms' growth, survival and industrial change,
either through a direct link between efficiency and growth, or through an
indirect effect via profitabilities, as more productive firms can enjoy higher
profit margins which, under imperfect capital markets, allow them to invest
and grow more. Does the empirical evidence bear such predictions? This paper
explores the dynamics of selection and reallocation through an investigation
of the productivity-profitability-growth relations at the firm level.
Exploiting large panels of Italian and French industrial firms, we find that
heterogeneity in efficiencies primarily yield persistent profitability
differentials, whereas the relationships of corporate growth with either
productivity or profitability appear much weaker, if at all existent. This
suggests that selection forces are much less strong than usually assumed.
Rather, the links between efficiency and corporate growth seem profoundly
mediated by large degrees of behavioural freedom. The results robustly applies
across different industrial sectors and across the two countries. |