The elusive quest for high-growth firms in Africa: when other metrics of performance say nothing
- PDF / 659,441 Bytes
- 22 Pages / 547.087 x 737.008 pts Page_size
- 89 Downloads / 173 Views
The elusive quest for high-growth firms in Africa: when other metrics of performance say nothing Florian Léon
Accepted: 14 September 2020 # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract The purpose of this paper is to study the persistence of firm growth in Africa, dedicating special attention to high-growth firms. The worldwide interest in identifying high-growth firms comes from the idea that these firms will continue to outperform in the future and to create jobs. We exploit a rich dataset covering all formal firms operating in Senegal from 2006 to 2015 to scrutinize growth persistence. We document that growth rates are negatively correlated across time, especially for high-growth firms, in line with evidence from industrialized countries. A top performer is more likely to become a bad performer in the next period than to sustain its previous performance. We show that other indicators of performance (such as profitability and productivity in the first period) are unrelated to the persistence of growth. This finding challenges the possibility of policymakers and investors selecting persistent high-growth firms by scrutinizing their previous performances. Keywords Firms . Growth paths . Africa . Senegal . High-growth firms Electronic supplementary material The online version of this article (https://doi.org/10.1007/s11187-020-00407-y) contains supplementary material, which is available to authorized users. F. Léon (*) Foundation for Studies and Research on International Development (Ferdi), 65, boulevard François Mitterrand, 63000 Clermont-Ferrand, France e-mail: [email protected] e-mail: [email protected]
JEL classifications G21 . O16 . L26
1 Introduction High-growth firms have received a substantial amount of attention from researchers, investors, and policymakers in recent years. The need to create sustainable jobs explains the worldwide interest in highgrowth firms (HGFs). Indeed, evidence reveals that most jobs originate from a small number of highgrowth firms in both industrialized countries (Henrekson and Johansson 2010; Coad et al. 2014) and in emerging countries (Grover Goswami et al. 2019). The detection of future HGFs has therefore mobilized many resources. Predicting entrepreneurial success and identifying future HGFs are a challenge, even with the combination of large datasets and advanced methods (Coad and Srhoj 2019; McKenzie and Sansone 2019). The purpose of this paper is to investigate firm growth persistence in Africa, with a special attention to HGFs. In doing so, we exploit a rich dataset on the universe of formal firms operating in Senegal from 2006 to 2015. The necessity to create jobs and therefore to detect and support HGFs is even more crucial in Africa than in the rest of the world to avoid social and political tensions due to demographic challenges ahead. Evidence regarding HGFs is largely based on European firms (see Table 1) and is hardly generalizable in Africa. African firms operate in more complex environment with market frictions, higher
Data Loading...
