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High-Growth
Entrepreneurship
David B. Audretsch
Prepared for the OECD
Copenhagen, March 2012
Research Questions
• What constitutes a “high-growth firm”?

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• How prevalent are high-growth firms?
• What is their (economic) impact?
• What are determinants of high growth firms?
• Firm-specific
• Locational
• What are policy implications?
What Constitutes a
High Growth Firm?
• “All enterprises with average annualized growth

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greater than twenty percent per annum, over a
three-year period, and with ten or more
employees at the beginning of the observation
period. Growth is thus measured by the number
of employees and by turnover.”
• the OECD-Eurostat Manual on Business
Demography Statistics (2007)
Gazelle Firms
• “All enterprises up to five years old with average

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annualized growth greater than twenty percent
per annum over a three-year period, and with
ten or more employees at the beginning of the
observation period.”
• OECD-Eurostat Manual on Business
Demography Statistics (2007)
Prevalence
• Less than 5 percent of firms in U.S. (Birch and
Medoff , 1994)

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• Between 2-4 percent of firms in U.K. (BERR,
2008)
• Less than one percent of enterprises in most
countries (OECD, 2007)
• Less than two percent of turnover in most
countries (OECD, 2007)
Economic Impact
• Birch and Medoff (1994 )1988-1992, around 70
percent of all new jobs in the United States created

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by existing firms (rather than new startups) were
accounted for by only four percent of the firms. This
same four percent of the firms accounted of 60
percent of all new jobs in the entire U.S. economy.
• U.K. government study finds between two to four
percent of all firms account for most of the growth
in employment (BERR, 2008)
• Account for high share of employment created in
any time period
• OECD (2007)
Determinants

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• Theoretical Framework
• Empirical Evidence
• Firm Specific
• Locational Specific
Theoretical Framework –
Gibrat’s Law
• Underlying Assumption: Opportunities are

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randomly distributed
• Sizeit = (1 +et) Sizeit-1
• Prediction – Firm growth is unpredictable,
randomly distributed and not specific to firm or
locational characteristics
Framework of Knowledge
Spillover Theory of
Entrepreneurship

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• Knowledge created in one organizational context
but not fully commercialized triggers
entrepreneurial startups
• Entrepreneurship provides conduit for spillover
of knowledge from organization creating
knowledge to new firm commercializing it
Framework of Knowledge
Spillover Theory of
Entrepreneurship

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• New & firms account for high share of employment
created
• Prediction that high growth should be systematically
related to
• High knowledge contexts (firm & locational specific)
• Negatively related to firm age (firm specific)
• Negatively related to firm size (firm specific)
• (Contrary to Gibrat’s Law)
Empirical Evidence on
Firm Growth
• For largest firms, Gibrat’s Law holds

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• Not systematically related to firm-specific characteristics of size
and age
• For broader distribution of firm size,
• Growth rates are higher for younger enterprises
• Growth rates are higher for smaller enterprises
• Growth rates are even higher for small and young enterprises in
knowledge-intensive industries
• Caves , Journal of Economic Literature (1998)
• Sutton, Journal of Economic Literature (1997)
Empirical Evidence
• Consistent with Jovanovic’s theory of noisy
selection (1982) and the knowledge spillover

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theory of entrepreneurship
• Robust across countries
• Caves , Journal of Economic Literature (1998)
• Sutton, Journal of Economic Literature (1997)
Entrepreneurship & Firm
Growth D

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Performance Survival Trajectory
- Returns
- Wages

B
Incumbent Firm
B

A B Failure Trajectory
C
Time
Temporal Impact of Entrepreneurship on
Employment Growth in the United States
(Source: Acs and Mueller, 2007)
2.5

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2.0

1.5

1.0

0.5

0.0
0 1 2 3 4 5 6
Lag (year)
Determinants of
High-Growth Firms

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• Firm-Specific Determinants
• High Growth Firms Young
• High Growth Firms Small
• Birch and Medoff (1994), Henrekson and
Johansson (2010), Storey (1994)
Firm-Specific
Determinants

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• Henrekson and Johansson (2010, p. 1), “net employment
growth rather is generated by a few rapidly growing
firms—so-called gazelles—that are not necessarily small
and young. Gazelles are found to be outstanding job
creators. They create all or a large share of net new jobs.
On average, gazelles are younger and smaller than other
firms, but it is young age more than small size that is
associated with rapid growth.”
Contradictory Evidence
• Acs, Parsons and Tracy (2008)
• American Corporate Statistical Library (ACSL),

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from Corporate Research Board
• 1994-2006
• Linked to DMI file from Dun & Bradstreet, the
United States Bureau of Labor Statistics’ Industry
Occupation Mix, and the PUMS file from the
United States Census Bureau
Key Findings of Acs, Parsons
& Tracy (2008)
• Most high impact firms are small

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• Large high-impact firms account for most of the
employment creation
• High-impact firms are not young (typical high-impact firm
not a startup)
• Mean age 25 years old
• Survived startup & adolescent phases prior to being
classified as high impact
• High-impact firms found in most sectors of economy
Table 1: U.S. Gazelles

Number of
Number of Employees Period Job Change Revenue Change ($1,000s)
Gazelles

1994-1998 309,160 3,018,440 $577,533,025

1-19 1998-2002 301,275 3,573,918 $716,504,242

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2002-2006 283,308 2,883,475 $589,072,471

1994-1998 43,342 3,014,683 $762,963,829

20-499 1998-2002 42,390 3,291,048 $957,923,241

2002-2006 39,617 2,130,682 $1,014,653,361

1994-1998 1,547 5,063,517 $1,195,977,664

500-plus 1998-2002 1,665 4,515,417 $1,841,396,607

2002-2006 1,485 2,514,558 $1,663,635,336

1994-1998 354,049 11,096,640 $2,536,474,518

Total 1998-2002 345,330 11,380,383 $3,515,824,090

2002-2006 324,410 7,528,715 $3,267,361,168


Number of High-Impact
Number of Employees Period Job Change Revenue Change ($1,000s)
Firms

1994-1998 327,397 3,170,729 $346,038,292

1-19 1998-2002 278,190 3,577,111 $423,042,570

2002-2006 359,289 4,041,099 $425,041,975

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1994-1998 23,464 2,788,969 $503,059,203

20-499 1998-2002 20,601 2,966,647 $570,102,604

2002-2006 16,523 2,001,835 $549,674,434

1994-1998 1,253 5,501,049 $1,110,073,562

500-plus 1998-2002 1,182 5,192,558 $1,657,759,197

2002-2006 793 2,966,826 $1,060,128,527

1994-1998 352,114 11,460,747 $1,959,171,057

Total 1998-2002 299,973 11,736,316 $2,650,904,371

2002-2006 376,605 9,009,760 $2,034,844,936


1994-1998 1998-2002 2002-2006

Firm Size (No. of Firm Size (No. of

Employees) Employees) Firm Size (No. of Employees)

500- 500-
1-19 20-499 1-19 20-499 1-19 20-499 500-plus
plus plus

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Age of Firm

0-4 2.83 0.67 0.56 4.13 0.9 1.35 5.55 0.89 0.38

5-7 16.72 7.94 4.89 22.42 9.89 9.73 23.26 10.19 6.2

8-10 16.81 11.49 7.94 15.46 11.56 7.7 17.3 13.04 10.63

11-14 17.85 16.82 14.6 15.08 13.92 9.98 14.34 13.82 10.76

15-19 15.22 16.19 13.95 13.75 16.09 15.57 11.95 14.41 13.04

20-24 10.51 11.49 9.22 9.61 11.68 11.68 8.59 12.44 9.75

25-29 6.75 9.13 9.3 6.24 8.43 6.77 6.09 8.62 7.72

30-39 6.62 9.96 11.39 6.54 10.72 10.58 6.74 10.97 10.89

40-49 3.32 6.12 6.82 2.98 5.75 5.33 2.67 5.47 6.96

50-69 2.42 6.31 10.67 2.4 6.3 8.63 2.27 5.46 9.49

70-99 0.95 3.9 10.67 0.94 3.4 7.02 0.86 3.2 7.85

100-plus 0 0 0 0.45 1.36 5.67 0.39 1.48 6.33


Additional Evidence
• United Kingdom 2008 study by Department for
Business Enterprise and Regulatory Reform

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(BERR)
• Broad range of sectors
• entrepreneurs & management teams with higher
skill levels & educational attainment
• greater propensity to hold intellectual property
and intangible assets, including trademarks
Additional Evidence
• Superior access to finance (high prevalence of
venture capital finance)

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• Cultural context promoting high growth
• High social capital component – networks,
partnerships, relationships & linkages to other
firms and institutions ( supply chains, formal
strategic alliances)
• BERR (2008)
Characteristics of
Entrepreneur
• High level of human capital (education)

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• BERR (2008); Baum et al. (2001); Baum
&Locke (2004); Vivek et al. (2009)
• Experience as entrepreneur
• Baum &Locke (2004)
• Experience as employee in high growth firm
• Klepper (2009 ); Agarwal et al. (2004)
Characteristics of
Entrepreneur

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• High levels of experience in industry
• Baum et al. (2001); Baum &Locke (2004)
• Gender (male)
• BERR (2008
Characteristics of Founding
Team of Entrepreneurs
• Size of founding team

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• Stability of the team members
• Time together as a team
• Heterogeneity of background
• Cohesiveness
• Eisenhardt & Schoonhoven, 1990
Locational Characteristics
• No tradition in research & management
• Journal of Economic Literature surveys by

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Sutton (1997) and Caves (1998)
• Existence of cluster or agglomeration of
complementary economic activity & supporting
institutions
-- Porter (1998)
• Empirical evidence identifying higher growth
rates for entrepreneurial startups within a
cluster
Empirical Evidence
• Empirical evidence identifying higher growth
rates for entrepreneurial startups within a

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cluster
• Gilbert et al. (2006 & 2008); Lechner and
Dowling (2003)
• Geographic proximity facilitates accessing and
absorbing localized knowledge spillovers
-Jacobs (1969); Jaffe et al. (1993); Audretsch &
Feldman (1996)
Localized Spillover Conduits
• Worker mobility

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• Almeida and Kogut (1999); Saxenian (1990);
Lee, Miller, Hancock and Rowen (2000)
• Entrepreneurial startups (Audretsch, Keilbach &
Lehmann, 2006)
• Localized networks, linkages & social capital
• Saxenian (1990)
Empirical Evidence
• Acs, Parsons and Tracy (2008)

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• High-impact firms found in almost every U.S.
location
• City
• SMSA
• State
• Region
Empirical Evidence
• Role of Geographic Proximity to Urban Area

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• Location with close geographic proximity to urban area important
• High impact firms found not only in urban areas
• Importance of urban area decreasing over time
• No discernible difference in spatial location of high- and low-
impact firms
Table 4a. High-Impact Firm Geographic Location

1994-1998 1998-2002 2002-2006

Distance from Central Business

District (Miles) Number Percent Number Percent Number Percent

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In CBD 36,758 10.48 28,085 9.38 33,249 8.84

1-5 31,771 9.06 27,547 9.20 33,966 9.03

6-10 59,279 16.90 50,357 16.82 63,458 16.88

11-15 35,154 10.02 31,476 10.52 39,269 10.45

16-20 26,307 7.50 23,018 7.69 30,169 8.02

21-25 27,998 7.98 24,197 8.08 30,383 8.08

26-30 15,579 4.44 13,507 4.51 18,014 4.79

31-35 10,377 2.96 9,661 3.23 12,866 3.42

36-40 10,180 2.90 8,941 2.99 11,046 2.94

41 or more 14,432 4.12 15,004 5.01 19,515 5.19

Rural 82,840 23.62 67,549 22.57 84,008 22.35


Table 4b. Low-Impact Firm Geographic Location

1994-1998 1998-2002 2002-2006


Distance from Central Business

District (Miles) Number Percent Number Percent Number Percent

In CBD 983,126 9.83 1,197,286 8.24 1,345,903 7.92

1-5 879,598 8.79 1,318,135 9.07 1,538,320 9.05

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6-10 1,660,875 16.60 2,461,005 16.93 2,921,467 17.19

11-15 984,786 9.85 1,513,943 10.41 1,794,170 10.55

16-20 722,589 7.22 1,122,682 7.72 1,359,973 8.00

21-25 762,361 7.62 1,180,531 8.12 1,373,575 8.08

26-30 438,348 4.38 662,607 4.56 801,096 4.71

31-35 290,937 2.91 443,464 3.05 562,935 3.31

36-40 279,359 2.79 411,190 2.83 483,402 2.84

41 or more 434,649 4.35 714,863 4.92 877,225 5.16

Rural 2,566,109 25.65 3,513,281 24.16 3,941,502 23.19


Policy Implications
• Promote entrepreneurship capital

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• Audretsch, Lehmann & Keilbach (2006)
• Promote access to finance
• Lerner & Gompers (2010)
• “There is strong evidence that a heavy regulatory burden
negatively impacts new companies’ into the market and
thereby contributes to reduced competitive pressure and
less entrepreneurship.”
• Swedish Agency for Growth Policy Analysis (2010, p. 8)
Conclusions
• High impact entrepreneurship plays key role in
growth & job creation in OECD

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• Systematic firm-specific characteristics of post-
adolescent & large firms contribute the most to
employment growth
• Entrepreneurial characteristics of human capital,
experience, access to finance & social capital
important
• Policy can facilitate high impact
entrepreneurship