Volume 24 Issue 3 Thematic Issue: The Characteristics and Role of Intangible Capital in Central-Eastern Europe, the Balkans and in the Mediterranean Article 6 September 2022 Triggers of Different Types of Firm Growth Triggers of Different Types of Firm Growth Nina Ponikvar University of Ljubljana, School of Economics and Business, Ljubljana, Slovenia Maks Tajnikar University of Ljubljana, School of Economics and Business, Ljubljana, Slovenia Petra Doš enović Bonč a University of Ljubljana, School of Economics and Business, Ljubljana, Slovenia, petra.d.bonca@ef.uni-lj.si Follow this and additional works at: https://www.ebrjournal.net/home Part of the Economics Commons Recommended Citation Recommended Citation Ponikvar, N., Tajnikar, M., & Doš enović Bonč a, P . (2022). Triggers of Different Types of Firm Growth. Economic and Business Review, 24(3), 187-195. https://doi.org/10.15458/2335-4216.1304 This Original Article is brought to you for free and open access by Economic and Business Review. It has been accepted for inclusion in Economic and Business Review by an authorized editor of Economic and Business Review. ORIGINAL ARTICLE Triggers of Different Types of Firm Growth Nina Ponikvar, Maks Tajnikar, Petra Dosenovic Bonca* University of Ljubljana, School of Economics and Business, Ljubljana, Slovenia Abstract Authors define and explainfirm growth as its transition from current position to short-term or long-term equilibrium motivated by profit maximisation. They allocate growing firms into six groups according to their growth type based on different dimensions of firm growth, i.e. growth of labour, growth of capital, growth of the volume of business, and growth of profit. Given that the typology of growing firms employed for the purpose of this paper is based on micro- economic theory, the triggers and their hypothesized relevance in explaining short-term and long-term growth patterns are also grounded in microeconomic theory. Accordingly, the authors study growth triggers in the form of the firm's technicalandallocative(in)efficiency,itsdisequilibriummarketpositionwithinarespectiveindustryandtheindustry's marketpositionrelativetootherindustries.Theythusassumethatfirmgrowthiseitherbasedontheutilizationoffirm's internalresourcesorisaresultoffavourablemarketconditionsandhypothesizethattheprobabilityofafirmbelonging to a particular type of growth is explained (i) with firm's internal efficiency, (ii) those market conditions that can be alteredbythedecisionsadoptedbymanagementand(iii)thosemarketconditionsthatareindependentfromtheactions of management. The authors explore these triggers of three types of short-term growth, long-term growth, unsuccessful growthanddownsizing,usingdatafor41,529Slovenianfirmsinthe2007e2012period.Resultsshowthatfirmgrowthin Sloveniaexhibitstheoreticallyexpectedlinksbetweengrowthtypesandtheirtriggersandalsohaverelevantmanagerial implications. Keywords: Growth types, Firm growth triggers, Technical efficiency, Allocative efficiency, Market conditions JEL classification: D22, L10, L21, L25 Introduction I n this paper we explore triggers of different types of firm growth. We identify six different growth types and internal and external growth triggers based on microeconomic theory. Inourallocationoffirmsaccordingtotheirgrowth type we do not follow the typology of firms' growth pathsrelatingtosurvival,continuousnessofgrowth, turning points, reversals and cumulative growth by Garnseyetal.(2006)orthetypologybyMcKelvieand Wiklund (2010) discussing organic, acquisition and hybridmodesofgrowthnortheapproachadoptedby Delmar et al. (2003) who based on cluster analysis used 19 measures of firm growth over a 10-year periodtoidentifysevendifferenttypesoffirmgrowth patterns. By following the work of Tajnikar et al. (2016) and Dosenovic Bonca et al. (2018) we study different types of growth based on microeconomic theory and set a priori criteria for allocation offirms intodistinctgroups.Weviewthefirm'sgrowthasits transitionfromcurrentdisequilibriumpositiontoits short-term or long-term equilibrium motivated by profit maximisation. We approach firm growth as discontinuous (D'Elia et al., 2019) withfirms shifting between equilibrium and disequilibrium states and exhibitingalteringunsystematicgrowthtypesintheir attemptstomoveclosertoequilibrium. We thus explore six different firm growth types according to microeconomic theory including three types of short-term growth, long-term growth, un- successful growth and downsizing identified based ondatafor41,529differentSlovenianmanufacturing and service firms in the 2007e2012 period (175,232 Received 25 September 2020; accepted 17 July 2021. Available online 15 September 2022 * Corresponding author. E-mail addresses: nina.ponikvar@ef.uni-lj.si (N. Ponikvar), maks.tajnikar@ef.uni-lj.si (M. Tajnikar), petra.d.bonca@ef.uni-lj.si (P. Dosenovic Bonca). https://doi.org/10.15458/2335-4216.1304 2335-4216/© 2022 School of Economics and Business University of Ljubljana. This is an open access article under the CC-BY-NC-ND license (http://creativecommons. org/licenses/by-nc-nd/4.0/). observations). As shown in the empirical section of thepaper,acombinationofgrowthindicatorsisused toallocatefirmsintodifferentgroups.Azero-growth rate of selected growth indicators sets the boundary betweennon-growingandgrowingfirms. In this paper we assume that the studied six growth types have different triggers that pertain to the firm's technical and allocative efficiency, its disequilibrium market position within the respec- tive industry and the industry's market position relative to other industries. The hypotheses about the links between different growth types and their triggers are based on microeconomic theory and their empirical analysis on the case of Slovenian firms. 1 Triggers of different firm growth types Firm growth continues toreceive alot ofattention in empirical research from different perspectives including the resource-based, the motivation, the strategic adaptation and the configuration perspec- tives (Brown & Mawson, 2013). Only the configura- tion perspective deals with growth as a ‘process’ building on Penrose's (1959) definition of growth as a process of internal development. Much of the existing firm growth literature, however, has adop- ted Penrose's (1959) first definition of growth as an outcome.Thisiswhytherehasbeenalotoffocuson how much firms grow, rather than examining their internal growth processes (McKelvie & Wiklund, 2010). Theoutput-focusedviewonfirmgrowth iswidely recognized as valuable in understanding firm growthandhowitrelatestodiversedeterminantsof growth and characteristics of firms ranging from size and age (e.g. Coad, 2009), innovation (e.g. Coad & H€ olzl, 2012), business cycle (e.g. Higson et al., 2002, 2004), profits (e.g. Coad, 2007, 2010; Lee, 2014; Parker et al., 2010), market value (e.g. Geroski et al., 1997), characteristics of the entrepreneur (e.g. Nichter & Goldmark, 2009), type, export orientation and ownership of firms (e.g. Beck et al., 2005; Harhoff et al., 1998; Robson & Bennett, 2000), min- imum efficient scale (Audretsch, 1995), degree of competition (Geroski & Gugler, 2004; Sutton, 2007), firm's country of origin (e.g. Bartelsman et al., 2009; Bravo-Biosca et al., 2013; Geroski & Gugler, 2004) and a wealth of other firm-level, industry-level and macroeconomic variables. More recent literature also highlights most common myths about particu- larly high growth firms and identifies a clear mismatch between how policy makers perceive fast growing firms and what they look like in reality (Brown et al., 2017). McKelvie and Wiklund (2010) argue that “despite hundreds of studies into explaining firm-level growth differences … researchers have been unable to isolate variables that have a consistent effect on growth across studies” (p. 264). This view is rein- forced byCoad andH€ olzl(2012) noting that thevast body of literature including many different factors as explanatory variables in growth regressions with low R 2 failed to provide “a thorough explanation of thegrowthratesexperiencedbyfirms”andthat“the majority of the variance in growth rates in within individual firms over time, rather than between different firms” (pp. 331e332). By investigating the influence of the economy-wide common shock on the cross-correlations of the growth rates, Alessi et al. (2013) concluded that the unique common factor explains only a fraction, i.e. 20%, of the total firm growth variance. This has shifted the focus from measuring how much a firm grows to exploring the more funda- mental question of how it is growing. The literature has evolved from traditional stage models to approaching firm growth as a discontinuous phe- nomenon and an unfolding developmental non- liner process prone to disequilibrium, disruptive events and setbacks in growth paths within firms (Brown & Mawson, 2013; Garnsey et al., 2006). Bessant et al. (2005) explore “tippingpoints”such as people management, management strategy and operational improvement to explain what pushes a firm's growth trajectory upwards. Vohora et al. (2004) use the notion of “critical junctures” and Brown and Mawson (2013) address endogenous, exogenous and co-determined “trigger points” and note that “while all firms are likely to encounter triggerpointsatsomepointintheirlives,notallwill capitalise on these events successfully” (p. 283). Alternatively to Brown and Mawson (2013) that view new product offering or change in company ownership as examples of endogenous trigger points, technological development and product failure in the marketplace as exogenous trigger points and entry into a new joint venture or firm acquisitionasco-determinedtriggerpoints,weseek to explore different internal and external triggers that push firms away from equilibrium, hence creating an incentive for the firm to adjust in order to maintain or improve its business performance. Firm growth is thus viewed according to microeco- nomic theory and emerges because the firm is in disequilibrium either in the short-term (with some inputsfixed)orinthelong-term(withthepossibility to adjust all employed inputs). This approach is motivated by the point made by Coad and Guenther (2014) that as the focus is on 188 ECONOMIC AND BUSINESS REVIEW 2022;24:187e195 BrownandMawson’s(2013)“triggerpoints”suchas diversification, for example, “there is no explicit empirical or theoretical consideration integrating the firm's situation preceding the diversification event” (p. 858). Given that the typology of firm growth types used in this paper is based on micro- economic theory, we also turn to microeconomic theory of the firm to explore developments within firms prior to the resulting specific growth path. According to microeconomic theory, such growth triggers are either internal or external. Internal triggers pertain to how firms use their limited re- sources and to the resulting costs. It is the man- agement's role to continuously implement those techniques that enable the firm to maximise its technical efficiency and to take input prices into consideration when adjusting a combination of in- puts to keep assuring allocative and cost efficiency. Firm growth stems from advantages in technical and allocative efficiency, hence increasing profit- ability. Firm growth fuelled by efficiency improve- mentsresultsinlowercostsandhigherprofitsasthe firm's production and size increase. External trig- gers are market conditions that can be only partly influenced by management but are often given and thus require a response and adjustments within firms.Higherdemandandtheresultingfirmgrowth can emerge either for all firms in a certain industry due to market imbalances or only for some firms withinaspecificindustryduetocreatedcompetitive advantages and superior position created through imperfect competition. Growth triggered by market conditions increases profitability of firms that suc- cessfully exploit favourable market conditions. Inthispaperweassumethatdifferentinternaland external triggers are associated with differing types offirmgrowth.Weobservesixdifferentfirmgrowth types to identify which disequilibrium and disrup- tive events change growth paths of firms. We sur- mise that internal and external triggers may have conflicting impacts on growth of firms, thereby resultingintheirdivergentandunsystematicgrowth paths. 2 Empirical model 2.1 Data and methodology We use the Slovenian firms’ financial statements database collected by the Agency for Public Legal Records and Related Services of the Republic of Slovenia. This database covers the population of firmsregisteredinSlovenia.Ouranalysisisbasedon data for 41,529 different Slovenian manufacturing andservicefirms(i.e.industriesfromcodes10to83of the2-digitNACEclassification)datainthe2007e2012 periodandincludes175,232observations. Tostudythelinkbetweentriggersofgrowthandthe firm'splacementinaparticulargroupaccordingtothe growthtype,weuselogisticregression(Greene,2003). We estimate seven logit models, one for each of the below definedfirmgroups according totheirgrowth typeGtype it .Thedependentdiscretechoicevariablein eachlogitmodeltakesthevalueof1forfirmsfroma particular group with a specific type of growth, and 0forallotherfirms. To fully exploit the panel nature of our dataset and at the same time to implicitly control for the unobserved firm heterogeneity, we apply the fixed effects logit model (Chamberlain, 1980), where in- tercepts are used instead of fixed constants: PRðy it ¼1Þ¼ expða i þx it bÞ 1þexpða i þx it bÞ : ð1Þ The empirical specification follows our hy- pothesis that firm's growth has either internal trig- gers, i.e. internal efficiency of utilising firm's resources, and external triggers referring to market conditions. 2.2 Types of firm growth and assumptions about their triggers We define the firm's growth type based on four dimensions of firm growth used also by Coad, Cowling and Siepel (2017) in their investigation of growth processes of high-growthfirms, i.e. employ- ment and sales growth, growth of operating profits, and growth of assets. In this paper growth of labour (L)ismeasuredasanannualchangeofthenumberof employees, growth of capital (K) in terms of the annualchange inthevalue offixedassets (property, plant and equipment) and non-tangibles, growth of the volume of business activity (TR) as the annual changeinbusinessrevenues,andgrowthofprofit(P) intermsoftheannualchangeinEBIT.Wefollowthe approach by Tajnikar et al. (2016) and Dosenovic Bonca et al. (2018) and use the following criteria for allocating growing firms into six groups, similar to Tajnikaretal.(2016): L 0 and K 0 and TR 0 andP > 0 for firms with short-term growth based on improved ca- pacity utilisation (G1); L >0andK 0 and TR > 0 andP > 0 for firms with short-term growth based on labour (G2); L 0 and K > 0 and TR > 0 andP > 0 for firms with short-term growth based on capital (G3); L >0andK> 0 and TR > 0 andP > 0 for firms with long-term growth (G4); ECONOMIC AND BUSINESS REVIEW 2022;24:187e195 189 L > 0 and K > 0 and P 0 for firms with un- successful growth (G5); L < 0 and K <0andP > 0 for downsizing firms (G6). All other firms not satisfying any of the above criteria are defined as non-growing firms (G7). In Table 1, we can observe changes in the struc- ture of different types of firm growth through the economiccycleinSlovenia.Thepre-2008periodwas marked by economic recovery and surging expan- sion, the phase of 2008e2009 is the crisis period of rapid contraction, while the phase after 2010 is the period of volatile recessions with 2010e2011 indi- cating economic recovery which subsequently reversedintothemoderatecontractionandnegative GDP growth rates (Tajnikar & Dosenovic Bonca, 2018). Shares of firms from all growth types decreased and the share of non-growing firms increased sharply with the economic crisis onset in Slovenia in 2009. To capture time specific impacts, the model specification includes also the annual dummy variable set for the 2007e2012 period. We assume that the listed six types of growth are all influenced by efficiency and market conditions but in different ways. The G1 type of growth that does not alter the combination of employed inputs is assumed to be a response to the firm's lagging behind in technical efficiency or emerges due to favourable conditions of the respective industry or the firm's advantage within the industry. Growth of firms in groups G2 and G3 (that alters the combi- nation of inputs) is expectedly triggered by alloca- tive inefficiency or occurs due to advantageous conditions within the industry or relative to other industries. Growth of firms from the G4 group is assumed to be due to higher cost efficiency moti- vated by the need to successfully undergo the in- vestment cycle. Favourable market conditions, particularly relative to other industries are believed tofuelthistypeofgrowth.Thehypothesisregarding unsuccessful growth of firms from the G5 group is that it emerges due to pressures to increase cost efficiency to support investment activities and unfavourable conditions of the industry or the less advantageous position of the firm within the in- dustry due to wrongly estimated market de- velopments.Theassumedtriggersofdownsizingfor firms from the G6 group include low cost efficiency and poor market conditions, particularly for the respective industry relative to other industries. 2.3 Internal triggers: firm efficiency estimation We study the link between firm's internal effi- ciency and its growth type in terms of firm's tech- nical and allocative efficiency. We do not explore firm-specificandotherattributesasdeterminants of efficiency (e.g. Vincent Mok & Yeung, 2005) but ef- ficiency as a determinant of a specific growth type. This allows us to investigate whether a specific growth type is triggered more by the needed ad- justments in the quantity of inputs per unit of output, i.e. technical efficiency, or by altering input combinations enabling cost minimisation, i.e. allo- cative efficiency. We use the Stochastic Frontier Analysis (herein- after SFA) to estimate the technical and allocative efficiency of firms from our database. Each firm i with a production function q in time t may produce less than it is possible with inputs z it and given technology, because of a degree of inefficiency e it (Kumbhakar & Lovell, 2000). The panel nature of the applied dataset allows us to distinguish between firm's inefficiency and un- observed firm heterogeneity. We specify our tech- nical efficiency model as: lnq ijt ¼ f ðlnL ijt ;lnK ijt ;D:industry j Þð 2Þ where q ijt representsthevalueofbusinessrevenues, L ijt is the average number of employees and K ijt is thevalueoffixedassetsofafirm ifromindustry jin the year t. D.industry j is a set of dummy variables basedonthe3-digitNACERev.2classificationused to explicitly account for the differences in the pro- duction function between industries. The value of business revenues andfixed assets are expressed in real terms, i.e. in fixed prices from 2007. To calculate firm's allocative efficiency, we first estimate its cost efficiency as: lnC ijt ¼ f ðlnq ijt ;lnP L:jt ;lnP K;jt ;D:industry j Þð 3Þ where C ijt represents the value of firm's business costs, P L.jt is the price of labour in terms of average industry level annual labour cost per employee and P K.jt is an average price of capital in industry j in the Table 1. Structure of firms by their growth type and year. Growth type 2007 2008 2009 2010 2011 2012 Pooled G1 5.7% 5.0% 2.7% 3.6% 3.8% 2.8% 3.9% G2 8.1% 6.7% 3.8% 4.9% 5.4% 4.4% 5.5% G3 7.3% 6.7% 2.8% 4.0% 4.5% 3.4% 4.7% G4 10.6% 9.7% 3.6% 4.7% 5.4% 4.6% 6.3% G5 9.7% 10.2% 7.8% 6.4% 6.5% 6.2% 7.7% G6 7.6% 7.2% 7.7% 9.8% 9.9% 11.4% 9.0% G7 51.0% 54.4% 71.7% 66.5% 64.5% 67.2% 62.8% Total number 27,571 28,242 29,920 30,174 30,326 30,135 176,368 Source: Own research. 190 ECONOMIC AND BUSINESS REVIEW 2022;24:187e195 year t. Price of capital P K.jt is defined following Ponikvar, Tajnikar, and Pusnik (2009) as: P K:jt ¼ depreciation jt þinterest jt fixedassets jt : ð4Þ We apply the Cobb-Douglas functional form for both the production and cost function (Kumb- hakar & Lovell, 2000). Considering that cost effi- ciency is calculated by multiplying technical and allocative efficiency estimators, the firm'sef ficiency enters our model specification separately as tech- nical efficiency TE it and allocative efficiency AE it . In both technical and cost efficiency models, we use the time-varying decay specification. In our case, the technical efficiency model shows that on average technical inefficiencies of the observed firms increased throughout the analysed 2007e2012 period. On the contrary, the SFA model for cost efficiency implies an increasing cost efficiency of observed units, i.e. firms in the analysed period. Measures of technical and allocative efficiency enter our empirical model equation with one-year lags to avoid potential endogeneity between firm growth and its efficiency. The technical and allo- cative efficiency variables (TE and AE, respectively) are continuous variables that can take values be- tween 0 and 1. Overall mean of the TE variable included in our model takes the value of 0.815 and overall mean of the AE variable 0.727. The average firm in the Slovenian economy could thus reduce its inputs for a given output level by 18.5%, while using optimal input combinations would decrease its costs by 27.2%. There is some variation between estimated average TE and AE scores for groups of firms with different growth types. Average TE scores for different groups of firms range between 0.785fornon-growingfirmsand0.834forfirmswith firms with short-term growth based on labour (G2). Average AE scores range between 0.678 for down- sizing firms (G6) and 0.748 for firms with short- term growth based on impeded capacity utilisation (G1). 2.4 External triggers: capturing market conditions In addition to (in)efficiency also changed market conditions can trigger firm growth. To capture market conditions, we assume that in a perfectly competitive economy a long-run equilibrium is a situation, in which factor returns, i.e. returns on capital r and returns on labour w, are equal across all firms and all industries. Any situation in which an individual firm has below or above industry average returns on labour and/or capital is thus considered as a disequilibrium that can trigger the firm to undergo a specific type of growth. Similar processes are trigged in disequilibrium situations in which anindividualindustry'swage and profitrates divergefromtheeconomy'saveragewageandprofit rates. As shown by Pusnik (2008) and DosenovicBon ca et al. (2015), sixteen alternative situations can be identified based on a comparison of the firm'sand industry's wage and profit rates and a comparison of the industry's and economy's wage and profitrates. Forthepurposeofthispaper,however,weusereturns tolabourandreturnstocapitalofindividualfirmsand industriestoconstructtwodichotomousvariables,i.e. industry_to_economy jt andfirm_to_industry it . We assume that the average industry-level factor returns exceed the average factor returns of the entire economy in industries with more favourable market circumstances compared to the economy as a whole. In such favourable market circumstances, market demand surplus allows all firms in such an industrytogrowfastercomparedtoanaveragefirm in the economy. This aspect of market conditions is exogenous to the firm. In our model, we use the variable industry_to_economy jt to measure the posi- tion of an industry relative to the entire economy in terms of factor returns. Returns to labour are measured as cost of labour (remuneration) per employee and returns to capital as the ratio of profits before interests and tax to firm's assets. As shown in Table 2, variable industry_to_economy jt takes thevalue of1whentheaverageindustry-level factor returns of at least one factor (either labour or capital or both) is above the economy's average factor return. An industry is considered to have an inferior position when both labour and capital in- dustry-level factor returns are below average compared to the averages in the economy. In such case, the variable industry_to_economy jt takes the value of 0. Similarly,firm-level factorreturns exceed average returnsearnedinanindustrywhenafirmcancreate more favourable business conditions for itself Table 2. Position of the industry relative to the entire economy. Value of industry_to_economy variable Industry level factor returns compared to economy's average factor returns 1 r jt > r SI.t and w jt > w SI.t 1 r jt > r SI.t and w jt < w SI.t 1 r jt < r SI.t and w jt > w SI.t 0 r jt s < r SI.t and w jt < w SI.t Note. r jt ¼ average industry-level return to capital, r SI.t ¼ average return to capital in the Slovenian economy, w jt ¼ average industry-level return to labour, and w SI.t ¼ average labour return in the Slovenian economy. Source: Own. ECONOMIC AND BUSINESS REVIEW 2022;24:187e195 191 comparedtoitsindustrypeers.Wemeasureafirm's position relative to its competitors within the in- dustrywiththevariablefirm_to_industry it .Thisaspect ofmarketconditionscanbe,atleasttoalargeextent, considered endogenous to thefirmas a result of the firm's management. As shown in Table 3, the vari- able takes the value of 1 for the above performing firms relative to their peers, i.e. when a firm-level factor returns of at least one factor (i.e. labour or capital or both) are above average compared to the average industry-level factor returns. It takes the value of 0 for firms characterised by below average factor returns of both labour and capital. Themeanofthedichotomousvariablesmeasuring the position of an industry in the economy (indus- try_to_economy jt )andthepositionofafirm within its industry (firm_to_industry it ), included in our model, show us the share of industries with factor returns above the economy average, and the share of firms with factor returns above the industry average. Accordingly, almost 73% of analysed firms operate in industries with above average factor returns compared to the economy's average. The share of such firms is highest (82.1%) in the group of firms with short-term growth based on increased capacity utilisation (G1) and lowest (70.3%) in the group of firms with unsuccessful growth (G5). Further, a bit less than 48% of firms earn higher factor returns comparedtotheaveragefactorreturnsoftheirpeers. The share of such firms is the highest (69.3%) in the group of firms with long-term growth (G4) and lowest (41.1%) in the group of non-growing firms. 3 Results and discussion In Table 4, we show the regression coefficients of thefixedeffectlogitregressionestimationsbasedon firm grouping according to specific growth type. Each column represents results of one logit model where we study the triggers of a specific type of growth. The dependent variable in these logit models thus takes the value of 1 for firms that belong to the group with a specific growth type and 0 for all other firms from the analysed dataset. As shown in Table 4, short-term growth based on increased capacity utilisation (G1) is more likely for more efficient firms, which is not in line with the assumptions outlined in Section 2.2, and as expected operating in favourable market conditions. This im- plies that the growth of firms from the G1 group is fuelled either by improvements in technical and to a lesserdegreeallocativeefficiencyoremergesinfirms due to excess demand. This type of growth is trig- gered by excess demand characteristic for the in- dustry as a whole and also for firms outperforming their competitors. Both market conditions and effi- ciency result in higher profits. Short-termtypesofgrowthbasedoneitherlabour (G2) or capital (G3) are linked to favourable market conditions (with a stronger impact of the firm's po- sition relative to its peers), superior technical effi- ciency and inferior allocative efficiency. Results implythatifexcessdemandfortheindustryrelative to other sectors does not enable firm growth, firms achieve growth by creating and exploiting compet- itive advantages within their respective industries. Results also indicate that this type of growth is associated with the firm's achieved superior tech- nical efficiency relative to other firms. The latter results through the firm's technological advance- ments enabling the firm to not only produce more with given resources but to expand at least some of the engaged inputs. Estimated coefficients for allo- cative efficiency further indicate that these types of growth are motivated by the benefits resulting from adjustments in labour to capital ratios leading to improved allocative efficiency and lower costs. Completive advantages and improved allocative efficiency result in improved profitability. While according to the assumptions from Section 2.2, long-term growth (G4) is expectedly associated with pressures to increase cost efficiency and favourable market conditions, particularly relative to other industries, empirical results indicate a slightly different conclusion. Long-term growth is nottriggeredbytechnical(in)efficiencybutislinked to favourable market conditions with a stronger ef- fect of the firm's position relative to its competitors. Firmswiththistypeofgrowtharealsocharacterised withlowerallocativeefficiency.Giventhatallocative efficiency estimations enter our model with a time lag, this may reflect the fact that it takes some time for long-term growth to result in expected output expansion. Lower allocative efficiency is thus also a trigger of firm growth that is intended to improve firm performance. However, profit growth results primarily due to favourable market conditions. Table 3. Position of the firm relative to its industry. Value of firm_to_industry variable Firm-level factor returns compared to industry-level factor returns 1 r it > r jt and w it > w jt 1 r it > r jt and w it < w jt 1 r it < r jt and w it > w jt 0 r it s < r jt and w it < w jt Note. r it ¼ firm's return to capital, r jt ¼ average industry-level return to capital, w it ¼ firm's average return to labour, and w jt ¼ average industry-level return to labour. Source: Own. 192 ECONOMIC AND BUSINESS REVIEW 2022;24:187e195 This conclusion is reinforced by the results for firms with unsuccessful growth (G5). Unsuccessful growth results due to harsh market conditions for both the industry relative to other sectors and for the firm within its industry. In such conditions leading to contractions of output levels, firms also demonstrate both technical and allocative in- efficiency resulting in lower profits. Some similar conclusions can be drawn for trig- gers of downsizing (G6). Downsizing is character- isticforinefficient(bothtechnicallyandallocatively) firms with a favourable position within their respective industry but operating in less attractive industries. Low technical and allocative inefficiency are thus triggers of this type of growth. For the G5 group of firms, low technical and allocative effi- ciency are a consequence of unsuccessful growth. For the G6 type of growth, however, inefficiency coupled with the firm's potential to maintain its competitive advantage is a trigger of growth that improves profitability. Non-growing firms are technically inefficient firms with lagging performance compared to com- petitors within their respective industry and also unfavourable market conditions characteristic for the industry as a whole. Results indicate that firms are unable to overcome these limitations even with their efforts for improved allocative efficiency. 4 Conclusions We explored different internal and external trig- gers that incentivize firms to maintain or improve their business performance and move towards equilibrium in six different growth paths as defined by microeconomic theory. The studied growth triggers include the firm's technical and allocative (in)efficiency,itsmarketpositionwithinarespective industry and the industry's market position relative to other industries. As shown in Section 2.2 of the paper, we based our assumptions about which triggers are associated with different growth types on microeconomic theory also. The hypothesized links between firm efficiency and market positions ontheonehandandstudiedsixgrowthtypesonthe other hand were confirmed using the case of the investigated Slovenian firms, but the results are applicable beyond the national context given that growth types and triggers are based on microeco- nomic theory. Short-term growth based on increased capacity utilisation (G1) that does not alter the combination of employed inputs is linked to superior efficiency and favourable market conditions of the respective industryorthefirm'sadvantagewithintheindustry. Short-term types of growth based on either labour (G2) or capital (G3) are triggered by allocative in- efficiency or advantageous conditions within the industry or relative to other industries. Favourable market conditions, particularly for the firm relative to its competitors, are believed to fuel long-term growth of firms (G4). The hypothesis regarding unsuccessful growth of firms from the G5 group is that it emerges due to pressures to increase cost efficiency to support investment activities and unfavourable conditions of the industry or the less advantageous position of the firm within the in- dustry due to wrongly estimated market de- velopments.Theassumedtriggersofdownsizingfor firms from the G6 group include low cost efficiency and poor market conditions, particularly for the respectiveindustryrelativetootherindustries.Non- Table 4. Conditional fixed-effects logistic regression for each growth type. Pr (Gx) G1 G2 G3 G4 G5 G6 G7 TE (-1) 0.678*** 0.199*** 0.279*** 0.132 0.286*** 0.141** 0.134*** (0.0842) (0.0748) (0.0797) (0.0782) (0.0699) (0.0625) (0.0400) [0.0254***] [0.0103***] [0.0124***] [-0.00773*] [-0.0205***] [-0.0114**] [-0.0294***] AE (-1) 0.0270*** 0.0378*** 0.0162*** 0.0516*** 0.0595*** 0.00937*** 0.0336*** (0.00376) (0.00547) (0.00548) (0.00532) (0.00453) (0.00318) (0.00244) [0.00101***] [-0.00196***] [-0.000721***] [-0.00301***] [-0.00428***] [-0.000757***] [0.00738***] Market_vs_ economy 0.658*** 0.165*** 0.385*** 0.105*** 0.174*** 0.0600*** 0.176*** (0.0344) (0.0246) (0.0275) (0.0239) (0.0209) (0.0195) (0.0123) [0.0247***] [0.00854***] [0.0171***] [0.00610***] [-0.0125***] [-0.00484***] [-0.0386***] Firm_vs_ market 0.630*** 0.830*** 0.989*** 1.041*** 0.101*** 0.194*** 0.792*** (0.0270) (0.0229) (0.0250) (0.0225) (0.0185) (0.0178) (0.0109) [0.0236***] [0.0429***] [0.0439***] [0.0607***] [-0.00726***] [0.0157***] [-0.174***] Time dummy set yes yes yes yes yes yes yes Log pseudolikelihood 27858.115 35860.464 31488.934 38785.204 46985.972 51526.376 108672.73 LRc 2 (9) 1167,84*** 1865,89*** 2391,92*** 4767.31*** 1969.35*** 1463.36*** 9088.58*** Observations 172,695 172,695 172,695 172,695 172,695 172,695 172,695 Note. Robust standard errors in round brackets; marginal effects dy/dx in square brackets; ***p < 0.01, **p < 0.05, *p < 0.1. Source: Own research. ECONOMIC AND BUSINESS REVIEW 2022;24:187e195 193 growing firms are technically inefficient firms with lagging performance compared to competitors within their respective industry and operating in less attractive industries. Such firms fail to over- come these limitations even with their efforts for improved allocative efficiency. Empirical results show that firm growth in Slovenia exhibits theoretically expected features outlined at the end of Section 2.2 of this paper. Re- sults also indicate that in the efforts to explore the fundamental question of how firms are growing, microeconomic theory might be a good theoretical foundation for the identification of the key primary triggers of firm growth. Results also have relevant managerial implica- tions. They stress the importance of the firm's competitive position within its respective industry that can be influenced by management and their success in developing active growth strategies. By actively creating the firm's competitive advantages, its management can ensure profitable firm growth. Aweakercompetitivepositionwithintheindustryis a serious obstacle for growth or even a threat for unsuccessful firm growth. Our analysis also shows how important it is for managers to continuously analyse and monitor market conditions both within their respective industry and relative to other sec- torsoftheeconomy.Anydisequilibrium stateofthe firm or any change that pushes the firm away from itsequilibriumdemandsapromptreactionfromthe management and an adequate type of growth. Short-term types of growth are an adequate response to changed input prices or altered market conditions. 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