The route to high growth: Patterns of financial and operational decisions for new firms in France

Abstract

Using a longitudinal dataset on a set of firms established, continuing, and closing over the period of 2002-2007 in France, we explore how a young firm’s financial policy and product market strategy may affect its growth path, as measured by employment growth. Financial decisions affect operational decisions. The aggressiveness of the firm is a means to obtain additional liquidities through higher sales levels, which then alleviates financial constraints allowing for additional operational spending. The "risk shifting" due to limited liability may also lead an entrepreneur to behave in a more aggressive manner and to promote a growth strategy. Our findings show that a small subset of new firms in France, exhibiting particular operational and financial patterns, has been at the origin of roughly 50 % of jobs created by the cohort within a 6 year period. We also find that certain entrepreneurial behaviors on the part of the founder/s are favorable for survivor firms to belong to the class of high-growth firms existing at the end of the observation.