THE ATTRIBUTES OF FIRM GROWTH - WHY AND WHY NOT A FIRM DOES GROW

Abstract

ABSTRACT Although previous studies suggest that innovative behavior has a positive effect on firm growth, little is known about the interaction between innovative behavior and different attributes of growth. In this study we examine the interaction between firm growth and different arrangements of growth attributes, such as willingness, abilities and opportunities for growth. We suggest that the order or causal relationship of growth attributes is not definite. In addition, we investigate does the innovative behavior moderate the relationship between growth attributes and firm growth by applying a qualitative configurational approach. Our results show that innovative behavior moderates firm growth: non-innovative firms seem to benefit more from growth intentions than other firms. INTRODUCTION In recent years, there has been an increasing interest in examining the different factors affecting on the firm growth. Primarily, the growth of the firm is related to the intentions of the entrepreneur or manager (Birley & Westhead, 1990; Wiklund, Davidsson, & Delmar, 2003; Wiklund & Shepherd, 2003). Entrepreneur or manager makes the fundamental decision to grow or not to grow his/her firm. However, these intentions are only one dimension of the attributes of firm growth (Sexton & Bowman-Upton, 1991; Toivonen, Stenholm, & Heinonen, 2006). As Covin and Slevin (1997) emphasized in their theoretical model that the effect of growth aspirations on firm growth is likely moderated by market constrains, entrepreneurial capabilities, and organizational resources. In this study we assume that all of the three attributes, willingness, abilities, and opportunities, have to be fulfilled to achieve growth. As previous studies have shown, growth aspirations are positively associated with firm growth. However, this relationship is affected by other factors, like abilities and opportunities (Sexton & Bowman-Upton, 1991; Wiklund & Shepherd, 2003). Growing a firm requires abilities or their reconfiguration to adapt firms’ activities and outcomes to the perceived growth opportunity. Without required abilities, like management skills or financial resources, growth is unlikely, even if primary decision-maker would have growth intentions (Penrose, 1959; Wiklund & Shepherd, 2003). If a firm already owns or is able to acquire the particular resources, it is likely that firm is able to react to the recognized opportunities. However, taking advantage of growth opportunities may require innovative behavior. In order to match the firm’s abilities to the recognized opportunities firms may have to renew and reconfigure their abilities as well as introduce new products or services to the markets (Lumpkin & Dess, 1996). Similarly, innovative behavior may create a whole new set of opportunities for growth. Therefore, we assume that innovative behavior moderates the relationship between the attributes of growth and actual growth. This assumption is partly supported by previous research that shows that different kinds of innovative behavior have a positive effect on firm growth (Sandvik and Sandvik 2003; Wolff and Pett 2006). However, still it is not clear how innovative 1Stenholm and Toivonen: THE ATTRIBUTES OF FIRM GROWTH - WHY AND WHY NOT A FIRM DOES GROWFrontiers of Entrepreneurship Research 2009

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