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Unseen job creators and firm growth barriers: the role of capital constraints and seniority rules
Örebro University, Örebro University School of Business.
2017 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

The topic of this thesis is to provide a deeper understanding of how the institutional framework affects firms’ hiring decisions.

The first article focuses on a group of firms, called sleeping gazelles, that do not grow despite having high profits. Sleeping gazelles constitute a much larger share of the firm population than that of high-growth firms. If it is growth barriers that are hindering these firms from hiring more employees, many new jobs could be created if these barriers were removed. To investigate the effects of one of the suggested growth barriers in the literature, the second article, focuses on whether small-firm growth is hampered by lack of capital. Using survey data from business owners matched with register data, we find that firms may face a capital constraint paradox, whereby the supply of external capital might be sufficient, but firm owners might refrain from accessing it due to fear of losing control of their companies. The third article investigates whether employment protection acts as a growth barrier in Sweden. Using a reform of the Swedish last-in-first-out (LIFO) rule, we estimate the causal effects from a liberalization of the employment protection. We find that firm growth increased because of the reform and that a more expansive reform could provide new job opportunities and increase overall employment. The LIFO rule was introduced to protect older workers. The fourth article investigates whether the reform weakened the labor market position of these workers. It is found that more young individuals who were unemployed or previously not in the workforce were hired as a consequence of the reform, showing that the reform lowered youth unemployment. There is no indication of older workers leaving the workforce or becoming unemployed to any greater extent after the reform. The fifth article show that the positive effects of the reform were limited to native workers, with no effects on the labor market position of immigrants. The effects depend on the relative insider-status of employees, so that groups of employees who are closer to being insiders benefit more from less-strict employment protection legislation than groups that are further from being insiders.

Place, publisher, year, edition, pages
Örebro: Örebro University , 2017. , 54 p.
Series
Örebro Studies in Economics, ISSN 1651-8896 ; 37
Keyword [en]
Firm growth, growth barriers, employment protection, institutions, capital constraints
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:oru:diva-58145ISBN: 978-91-7529-207-6 (print)OAI: oai:DiVA.org:oru-58145DiVA: diva2:1112489
Public defence
2017-10-06, Örebro universitet, Musikhögskolan, Hörsal M, Fakultetsgatan 1, Örebro, 13:15 (English)
Opponent
Supervisors
Available from: 2017-06-20 Created: 2017-06-20 Last updated: 2017-09-15Bibliographically approved
List of papers
1. Sleeping gazelles: The unseen job creators?
Open this publication in new window or tab >>Sleeping gazelles: The unseen job creators?
2015 (English)In: Entrepreneurial Growth: Individual, Firm, and Region / [ed] Andrew C. Corbett, Jerome A. Katz, Alexander Mckelvie, Emerald Group Publishing Limited, 2015, 161-185 p.Chapter in book (Refereed)
Abstract [en]

High-growth firms have recently received considerable attention in the firm growth literature. These firms might have grown despite the existence of growth barriers, and evidence also suggests that, having already grown exponentially, they may not be in the best position to grow further. Policies targeting high-growth firms may therefore be misdirected. We argue that entrepreneurship researchers should concentrate more on firms that are not hiring, despite having high profits. We call these firms “sleeping gazelles,” and demonstrate that they represented almost 10% of all limited liability firms in Sweden from 1997 to 2010. Nearly half of these firms continued to earn high or moderate profits in subsequent three-year periods, while still displaying no growth. Regression analyses indicate that these firms were significantly smaller, older, more likely to be active in industries with high profit uncertainty, and more likely to be located in less densely populated municipalities than were corresponding growing firms.

Place, publisher, year, edition, pages
Emerald Group Publishing Limited, 2015
Series
Advances in Entrepreneurship, Firm Emergence and Growth, ISSN 1074-7540 ; 17
Keyword
Gazelles, high-growth firms, firm growth, growth barriers, job creation
National Category
Economics
Identifiers
urn:nbn:se:oru:diva-60668 (URN)10.1108/S1074-754020150000017013 (DOI)2-s2.0-84938795582 (Scopus ID)978-1-78560-047-0 (ISBN)978-1-78560-046-3 (ISBN)
Available from: 2017-09-08 Created: 2017-09-08 Last updated: 2017-09-08Bibliographically approved
2. The capital constraint paradox in micro and small family and nonfamily firms
Open this publication in new window or tab >>The capital constraint paradox in micro and small family and nonfamily firms
2016 (English)In: Journal of Entrepreneurship and Public Policy, ISSN 2045-2101, E-ISSN 2045-211X, Vol. 5, no 1, 38-62 p.Article in journal (Refereed) Published
Abstract [en]

Purpose – The purpose of this paper is to investigate the importance of the entrepreneur’s quest for independence and control over the firm for governance and financing strategies with a special focus on family firms and how they differ from nonfamily firms.

Design/methodology/approach – The analysis is based on 1,000 telephone interviews with Swedish micro and small firms. The survey data are matched with firm-level data from the Bureau van Dijks database ORBIS.

Findings – The analysis shows that independence is a prime motive for enterprises, statistically significantly more so for family owners. Family owners are more prone to use either their own savings or loans from family and are more reluctant to resort to external equity capital. Our results indicate a potential “capital constraint paradox”; there might be an abundance of external capital while firm growth is simultaneously constrained by a lack of internal funds.

Research limitations/implications – The main limitation is that the study is based on cross-section data. Future studies could thus be based on longitudinal data.

Practical implications – The authors argue that policy makers must recognize independence and control aversion as strong norms that guide entrepreneurial action and that micro- and small-firm growth would profit more from lower personal and corporate income taxes compared to policy schemes intended to increase the supply of external capital.

Originality/value – The paper offers new insights regarding the value of independence and how it affects strategic decisions within the firm.

Place, publisher, year, edition, pages
Emerald Group Publishing Limited, 2016
Keyword
Tax policy, Family firms, Informal institutions, Ownership
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:oru:diva-52998 (URN)10.1108/JEPP-10-2015-0033 (DOI)000387745300003 ()2-s2.0-84962135382 (Scopus ID)
Available from: 2016-10-17 Created: 2016-10-17 Last updated: 2017-09-15Bibliographically approved
3. Employment protection legislation and firm growth: evidence from a natural experiment
Open this publication in new window or tab >>Employment protection legislation and firm growth: evidence from a natural experiment
2017 (English)In: Industrial and Corporate Change, ISSN 0960-6491, E-ISSN 1464-3650, Vol. 26, no 1, 169-185 p.Article in journal (Refereed) Published
Abstract [en]

A Swedish reform in 2001 made it possible for firms with less than 11 employees to exclude two from the last-in-first-out principle in case of layoffs. The reform increased employment growth with over 4000 additional jobs per year among firms with five to nine employees. Firms with 10 employees became 3.4 percentage points less likely to increase their workforce, indicating that the introduced threshold kept them from growing. Thus, employment protection legislation seems to act as a growth barrier for small firms.

Place, publisher, year, edition, pages
Oxford University Press, 2017
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:oru:diva-55246 (URN)10.1093/icc/dtw017 (DOI)000397116700008 ()2-s2.0-85014433259 (Scopus ID)
Available from: 2017-02-02 Created: 2017-02-02 Last updated: 2017-09-15Bibliographically approved
4. Do seniority rules protect older workers?: Age composition effects of the last-in-first-out principle
Open this publication in new window or tab >>Do seniority rules protect older workers?: Age composition effects of the last-in-first-out principle
(English)Manuscript (preprint) (Other academic)
National Category
Economics
Identifiers
urn:nbn:se:oru:diva-60669 (URN)
Available from: 2017-09-08 Created: 2017-09-08 Last updated: 2017-09-15Bibliographically approved
5. Employment Protection Legislation and the Labor Market Position of Immigrants: A Natural Experiment
Open this publication in new window or tab >>Employment Protection Legislation and the Labor Market Position of Immigrants: A Natural Experiment
(English)Manuscript (preprint) (Other academic)
National Category
Economics
Identifiers
urn:nbn:se:oru:diva-60670 (URN)
Available from: 2017-09-08 Created: 2017-09-08 Last updated: 2017-09-15Bibliographically approved

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