Firm growth and survival: a comprehensive review of the literature and proposal of a composite performance index

Miguel Garrinhas Marques

Key information

Authors:

Miguel Garrinhas Marques (Miguel Marques)

Supervisors:

Miguel Simões Torres Preto (Miguel Torres Preto); António Miguel Areias Dias Amaral (António Miguel Areias Dias Amaral)

Published in

September 12, 2022

Abstract

Firm performance has been widely studied, being a keystone in guiding strategic decision, both in management practice and policymaking. While the definition of the concept, its comprising dimensions, and best measures are not consensually agreed upon, its multidimensionality has been acknowledged. Furthermore, the use of multiple dimensions and measures has been deemed to yield a better depiction of performance. This work, thus, addresses the creation of a composite index of performance along two such dimensions – growth and survival – that have been extensively studied, both on their own and in conjunction. The literature review identifies complementarity between resource-based theories and population ecology perspectives, finding strong support for the joint consideration of growth and survival. Subsequently, a unifying taxonomy of performance along these dimensions is proposed, measuring growth through DHS indicators of sales and workforce, and survival through a parametric discrete-time model. A cohort of 10624 firms is followed from their birth in 2010 until 2018, with an inverted U-shape relationship between survival and growth being observed in the exploratory analysis, in line with extant literature. A composite index is assembled through the linear aggregation of the three analyzed variables, leveraging on multivariate methods for the weighting. Overall, the index enables full quantitative comparison of firms in terms of their combined growth and survival performance, alas at the expense of classification accuracy. In contrast, the proposed taxonomy yields a mutually exclusive and collectively exhaustive qualitative classification firms, albeit being unable to compare them.