Drawing growth trajectories of firms

Abstract

Several indicators of size have been suggested in the literature. However, none has succeeded in describing the growth trajectory of firms over time. This paper identifies sources of conceptual ambiguity in the notion of growth, suggesting an indicator of firm size. The proposed indicator is both simple and poweful, it uses information that is, in general, easily available and consistent over time, it shows a company’s growth relative to the economy and it automatically corrects for inflation. It allows, therefore, for the drawing of growth trajectory curves that visually describe the growth path a firm performs in the economy throught its existence. By providing a concise description of the evolution of the firm over long periods of observation, the indicator enables the identification of growth, contraction and stationary periods. A procedure to generate other accounting-based measures of the firm, which may help longitudinal analyses of firm and industry evolution. The suggestions proposed in the paper equip both research and practice with analytical tools to map growth over economic space and time, addressing, therefore, the criticism of overly static and methods in the study of the firm.