Young Innovative Companies: The New High-Growth Firms?

Young Innovative Companies (YICs) recently gained attention in economic literature and in European policy. YICs are small, young and highly intensively engaged in innovation activities. Due to these characteristics, they seem to be more inclined to exploit a newly found concept, stimulating that way technological change, an important determinant of long-run productivity. This, in turn, raises expectations concerning their contribution towards (macroeconomic) growth and job creation. Despite the attention from both governments and scholars, the actual growth patterns of YICs have rarely been studied. Consequently, this paper investigates whether YICs, as defined by the EU, grow more than other firms, both in terms of employment and sales. In addition, the importance of the different factors, age, size and R&D intensity, is questioned by analyzing to what extent YICs can be differentiated from other types of firms encompassing these factors only partly.

We employ a database of Flemish firms over the years 2001-2008, based on the Community Innovation Survey, the Eurostat/OECD Research & Development Survey and the Belfirst database containing balance sheet information. The estimation results reveal that YICs do indeed grow significantly more than other firms. This study also confirms the importance of combining the individual properties characterizing YICs. These firms can be clearly differentiated from New Technology Based Firms (NTBFs), i.e. being small, young, and performing R&D, as well as from small young firms, i.e. being solely small and young, without having any specific R&D requirement.

Next to ordinary least squares regressions, quantile regressions are performed in order to take the underlying distribution of the growth variables into account. The results reveal that YICs especially grow faster than other already fast-growing firms. These findings are robust to a number of other robustness checks. We thus conclude that YICs might indeed foster macroeconomic growth in the long-run, and that the attention of European policy is not unreasonable on first sight. However, we suggest some avenues for further research on this topic to supplement our first large-scale evidence on growth performance of YICs.

Czarnitzki, Dirk and Julie Delanote (2012), Young Innovative Companies: The New High-Growth Firms?, ZEW Discussion Paper No. 12-030, Mannheim, published in: Industrial and Corporate Change.