As it has been noted on this blog before, high growth firms are the superstars of every local economy. A tiny percent of firms overall, these firms are often responsible for creating the majority of jobs in a city. Understandably, local stakeholders and researchers are intrigued by this phenomenon: what are the common features of companies that are capable of such high growth, and how are they different from their peers?
The secret to achieving extraordinary growth rates may be in hiring well, as suggested by Micheline Goedhuys and Leo Sleuwaegen in a recent paper. Based on their research, good quality human capital tends to reduce the risk of failure and low growth at firms. Heavy investment in R&D, on the other hand, can work in both ways: at times strong innovation efforts increased the chance of becoming a high growth firm, but they were also associated with a higher probability of failure.
Policy-makers, in turn, should account for the risk associated with R&D spending as they encourage innovation. As the authors note, promoting human capital development and the placement of highly qualified workers is a safer way to encourage economic growth. Learn more here.
Contributed by Lili Torok.