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2 Literature review and conceptual framework
author identified several factors that may influence the generation of a
number of high-growing firms in urban areas: industrial diversity, the
extent of growth industries, economic growth, overall economic size and the
extent of local venture capital. Moreover, urbanised areas with a major
university, highly educated population, or sports organisations, seemed to
have disproportionately high numbers of such firms.
Prior studies have also shown that the operating environment of the firm
affects the relationship between sales growth rates and executives’
propensity for risk taking (Covin and Slevin, 1998). In addition, there is
some empirical evidence that an increase in annual sales growth may boost
the propensity to create innovations from patents (Arundel and Kabla,
1998). These findings indicate that growth may affect firms’ innovation
activity. However, very few prior empirical growth studies have focused on
environmental aspects of entrepreneurial firm growth, and little is known
about companies that manage to be innovative and maintain high growth
rates simultaneously. Moreover, comparative regional studies of innovative
high growth firms are very scarce, even though small business and new
venture growth have been intensively empirically researched (See e.g.
Almus, 2002; Davidsson et al., 2009; North and Smallbone, 2000; Smith et
al., 2000 and Vaessen and Keeble, 1995).
2.2.2 Characteristics of innovative growing SMEs
The influences of firms’ characteristics, especially size and age, on
innovations and growth performance have long been debated. Numerous
empirical studies have tested the Schumpeterian hypothesis that large firms
tend to have resource advantages for exploiting new technology compared
with small ones (Acs and Audretsch, 1988; Battacharya and Bloch, 2004;
Cohen, 1995; Freeman and Soete, 1997; Santarelli and Piergiovanni, 1996;
Tether, 1998). Bouwer and Kleinknecht (1999) confirmed that large firms
are more likely to seek patent protection than small firms. However, Kohn
and Scott (1982) showed that a relatively strong resource base of R&D
inputs does not necessarily imply the existence of scale economies in
producing innovative output. Small firms are often structurally less
complex or have less hierarchical organizations and management, and thus
may have more flexibility and time advantages in adjusting their resources.
In prior studies the size of the firm and its connection to growth have also
been examined by applying Gibrat’s law of proportionate growth, which
assumes that size is not correlated with growth and that growth follows a
random walk. However, the results of numerous empirical studies suggest
that relative firm growth generally decreases with increases in the size of
the firm (Almus and Nerlinger, 2000).
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