R&D activities for becoming a high-growth firm through large jumps: evidence from Korean manufacturing

ABSTRACT

Although firms are typically considered to grow continuously, discontinuous growth paths of low-growth firms, the so-called large jumps, are also frequently observed. However, while researchers have discussed large jumps theoretically, empirical evidence is lacking. Based on the gaps in the literature, this study examines how low-growth firms achieve large jumps and how such firms become high-growth firms by sustaining their growth momentum thereafter. By constructing a unique merged dataset of Korean manufacturing firms, we find that 24% of low-growth firms achieved large jumps and 27.4% of these maintained their growth momentum, becoming high-growth firms. The results show that R&D investment and R&D collaboration increase the probability of achieving large jumps. However, becoming a high-growth firm by sustaining the growth momentum after large jumps requires persistency of R&D investment and internal capabilities instead of collaboration. Our findings suggest management and policy implications to escape from the low-growth trap.

KEYWORDS:

• Large jumps
• firm growth
• high-growth firm
• low-growth firm
• R&D activities

Acknowledgement

This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2015S1A5A8016839).

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Taewon Kang is a Postdoctoral Fellow at Seoul National University. He received his PhD from Seoul National University. His research interests are in economics of innovation and firm dynamics.

Chulwoo Baek is an Associate Professor at Duksung Women’s University. His research interests are innovation policy, industry dynamics and productivity analysis.

Jeong-Dong Lee is a Professor at Seoul National University. His research interests are in knowledge accumulation, innovation strategy and policy.

Notes

1. Clustering analysis classifies seven patterns of becoming a high-growth firm: 1) super absolute growers, 2) steady sales growers, 3) acquisition growers, 4) super relative growers, 5) erratic one-shot growers, 6) employment growers, and 7) steady overall growers.

2. For percentage growth rates, the average growth rate for firms in Q5 is about 76%.

3. Additionally, variance inflation factors (VIFs) are used to examine bias estimates derived from multicollinearity. We found most to be below 2 and less than the conservative threshold of 5. The above results demonstrate that multicollinearity is not a major issue in this study.

4. This evidence does not mean that size and age have no impact on the probability of large jumps. Indeed, the average distributions are found to be lower for firms that experienced large jumps than those that did not. The statistical differences are shown in Tables 3 and 5.

Additional information

Funding

This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (grant number NRF-2015S1A5A8016839).