Regional Diversity and High-Growth Entrepreneurship

1. Regional Diversity and High-Growth Entrepreneurship Fredrik Andersson Statistics Sweden NedimEfendic Stockholm School of Economics Karl Wennberg Stockholm School of Economics & Ratio

2. Background • While unevenly distributed, we know that High-Growth Firms (HGFs) exist in all industries and all regions (Delmar, Davidsson & Gartner, 2003) • Yet, research has merelybegan to grapple with regional factorsthat maycorrelate with the emergence of HGFs (Teruel & de Wit, 2011) • Immigrants tend to start more companies than natives (Dana, 2007) – but whether these firms grow or not contingent on several other factors (Hart & Acs, 2011)

3. Theory and Purpose • Theories of regional science suggests that regional diversity, both in economic and non-economic terms, is conducive for economic growth (Quigley, 1998) • While migration has been shown to facilitate firm formation, we do not know what type of firms (low-growth, high-growth) (Levie, 2007; Pennings, 1982) (1) How do diversity in income, ethnicity, and education shape the number of HGFs in a region? (2) Do the same factors affect the likelihood that individual firms within a region will become an HGF? Purpose

4. Data • Matched employee-employer data from Statistics Sweden • Sample: All Swedish incorporated firms 2004-2009: • Fewerthan100 employees in 2004 • No public involvement • At leastoneemployee in addition to founder N=43,199 • Analyses: (1) Region-levelanalyses on # of HGFs (2) Firm-Level analyses on probability of becoming an HGF (same predictors as in analysis 1)

5. Measuring growth • Gibrat-type regression (size-independent growth) where growth is a relative measure: (Sorenson, 2003; Delmar & Wennberg, 2010) S t+1/St= Styexp (βΧt + ε) Where: Xit= predictor variable X at time t S = Size in turnover at time t y = firm’s relative size to the industry (MES) ε = error term

6. High-growth firms in a region and industry • Region level: Panel models on % HGFs in eachmunicipality • Firmlevel: Growthamongallfirms… • Firmlevel: Quantile regression on each ”snippet” of growth… • Firmlevel: Logitmodels on 10% mostrapidlygrowingfirms (Stam & Wennberg, 2009)

7. Firms and CEO background: descriptives

8. Regions and HGFs: descriptives “Star Gazelles” - 1995-2002 Source: Fredric Delmar and Karl Wennberg (2010)

9. Regional-level predictors

10. Regional-level analysis % HGFs in Swedish Municipalities, 2005-2008 % HGFs= #HGFs / all firms

11. Firm-level variables

12. Firm-level Analysis Descriptive Results • Firms with Native CEO 10-20% larger Mean growth Mean turnover Native CEO First generation immigrant CEO Thousand SEK Second generation immigrant CEO Firms with Native CEO growsslower (”catching up effect”)

13. Firm-level Analysis: Logit on becoming HGF Firm-level Variables Region-level Variables

14. Results • Regional factorsexhibit a strong influence on the emergence of HGFs • Diversity in incomes (gini) as wells as ethnicity (second generation immigrants) positivelyassociated with %HGFs in a region • The same region-levelfactorsalsoaffect the growth of individualfirms

15. Conclusions and further work • Resultsindicate the regional aspects of HGFs is an underexplored are requiringmoreempirical and theoretical work • Regional characteristics (e.g. diversity) importantboth for firmdynamics in the region and for the growthchances of the individualfirm • Analysis of growthpatterns of individualfirmsalsoneed to considergeographicfactors (e.g. multi-levelanalysis) • Current definition of HGFslimited to firms at the top of the cross-sectionalgrowth rate distributions  additionalanalysesneeded to distinguishbetween ”persistent HGFs” (3 year+) and ”temporarygrowthfirms”

16. Questions, Comments, Criticism? Thank you!

17. What industries do non-native CEOs start businesses in? • First generation immigrants often start firms in ”personal services” (=restaurants) • Second generation immigrants often start in oftare in ”Financial Services and Consulting” as well as in “Education and Research”