Drivers of SME Growth: Quantile Regression Evidence From Developing Countries

Abstract

This study explores the determinants of firm growth rate for small and medium-sized enterprises (SMEs) in different quantiles of the conditional growth rate distribution using data from World Bank Enterprise Surveys (WBES) covering 80 developing and emerging markets. It contributes to the literature by providing evidence of the effects of insufficiently investigated factors on firm growth. It also examines the impacts on firm growth of certain factors for which there is conflicting empirical evidence. Our quantile regression results show that firm age is negatively associated with firm growth rate throughout the entire distribution, except the lower tail. Firm size has a negative effect on growth rate in the upper tail of the distribution. We also find that the industry experience of the top manager positively impacts the growth rate only in the upper-middle range of the distribution. Product innovation positively affects firm growth rate from the lower-middle range to the highest quantile of the growth distribution. Additionally, we provide evidence that process innovation has a positive relationship with growth in the middle quantiles. SMEs that see access to financing as a more severe obstacle to their operations have lower growth rates throughout almost the entire growth distribution.