Transcript An Empirical Analysis to investigate on High Growth definition Session 6A: Entrepreneurship indicators, Business Demography and SMEs By Patrizia Cella and Mirella Morrone (ISTAT-

An Empirical Analysis to investigate
on High Growth definition
Session 6A: Entrepreneurship indicators,
Business Demography and SMEs
By Patrizia Cella and Mirella Morrone (ISTAT- Italy)
21° Meeting of the Wiesbaden Group on BRRoundtable on Business Survey Frames
Paris, November 24-27, 2008
21th Meeting of Wiesbaden
Group on BR – Roundtable
on Business Survey Frames
Outlines:
1. Purposes
2. The Potential High Growth
3. The High Growth definition
4. Shift-share analysis
5. Performance Indicators
6. Conclusions
Paris, November 26, 2008
21th Meeting of Wiesbaden
Group on BR – Roundtable
on Business Survey Frames
Purposes:
The purpose of this work is to investigate on the
definition of High Growth enterprises, described in
the EUROSTAT-OECD Manual on Business
Demography Statistics.
In particular, various strategies for determining HG
rates and their impacts on entrepreneurship are
tested, especially with regards to wealth and
employment creation contribution. For this purpose
different sets of potential high-growth enterprises
are compared in terms of employment and turnover.
Paris, November 26, 2008
21th Meeting of Wiesbaden
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on Business Survey Frames
The Potential HG (1)
Definition:
All enterprises that are actives in three
consecutive years, excluding the
enterprises born in the beginning of the
observation period.
In the year 2005 the Potential HG is:
AA=N2002 ∩ N2003 ∩ N2004 ∩ N2005
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21th Meeting of
Wiesbaden Group on BR
– Roundtable on
Business Survey Frames
The Potential HG (2)
Potential Population for HG
NACE
C
D
E
F
G
H
I
J
K70.71.73
K72
K74
Totale
0
716
176,413
807
226,429
709,497
96,378
77,511
31,204
113,743
33,920
370,322
1,836,940
Paris, November 26, 2008
1
292
47,051
113
49,649
96,445
30,515
10,245
5,549
8,308
6,069
40,698
294,934
Size class of employees (year 2002)
2-4
5-9
10-14
621
599
340
71,460
49,190
25,256
173
137
97
56,870
25,730
8,547
89,829
33,340
10,791
33,543
12,949
3,568
13,183
7,283
2,848
6,915
1,645
406
4,534
1,091
326
8,966
4,025
1,407
33,797
10,853
3,406
319,891 146,842
56,992
15-19
148
12,562
35
3,240
4,201
1,439
1,310
191
135
583
1,346
25,190
Total
20+
299
3,015
31,143 413,075
295
1,657
5,021 375,486
8,086 952,189
2,423 180,815
3,804 116,184
1,026
46,936
305 128,442
1,498
56,468
4,319 464,741
58,219 2,739,008
21th Meeting of
Wiesbaden Group on BR
– Roundtable on
Business Survey Frames
The Potential HG (3)
Potential Population for HG
NACE
C
D
E
F
G
H
I
J
K70.71.73
K72
K74
Total
arithmetic
average
12.03
8.58
63.46
2.04
1.43
2.61
7.00
8.69
0.43
3.80
1.73
3.13
entropy
average
26.83
29.37
229.02
9.09
12.89
12.52
62.30
159.02
9.67
23.04
30.18
24.02
1
Ai 
Entropy average (MH)= exp   Ai log

i
A
N
i

Where:
Paris, November 26, 2008
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The HG definition (1)
Definition:
All enterprises with average annualised
growth greater than 20% per annum, over
three year period should be considered as
high-growth enterprises. Growth can be
measured by the number of employees or
by turnover
HG _ empl  emplxx emplxx  3  1.728
HG _ turn  turnxx turnxx  3  1.728
Paris, November 26, 2008
21th Meeting of Wiesbaden
Group on BR – Roundtable
on Business Survey Frames
The HG definition (2)
HG_rate = 9.1%
What is the meaning of this high-growth rate?
What is the impact that these high-growth enterprises
are on the economy?
Em ploym ent
Turnover
34.4%
59.6%
40.4%
65.6%
Rest of pHG
Paris, November 26, 2008
HG
Rest of pHG
HG
21th Meeting of Wiesbaden
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on Business Survey Frames
The HG definition (3)
Contribution of high-growth enterprises by sectors of economic activity
Em ploym ent
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
C
D
E
F
G
H
Rest of pHG
Paris, November 26, 2008
J
I
HG
K70.71.73 K72
K74
Total
21th Meeting of Wiesbaden
Group on BR – Roundtable
on Business Survey Frames
The HG definition (4)
Contribution of high-growth enterprises by sectors of economic activity
Turnover
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
C
D
E
F
G
H
Rest of pHG
Paris, November 26, 2008
I
J
HG
K70.71.73 K72
K74
Total
21th Meeting of Wiesbaden
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on Business Survey Frames
Shift-share analysis (1)
Shift-share analysis permits to decompose employment
or turnover growth into three components:
1) Trend Component
2) Industry Mix effect
3) Competitive effect
Eio
 roo  h roh  roo Eih Eio   h rih  roh Eih Eio 
Eio
TC
(Trend component)
Paris, November 26, 2008
IM
(Industry Mix Effect)
CE
(Competitive Effect)
21th Meeting of Wiesbaden
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on Business Survey Frames
Shift-share analysis (2)
Shift-share analysis was applied to 6 sub-population:
1) Other legal forms of enterprises with less than 10 employees
2) Limited liability company with less than 10 employees
3) Other legal forms of HG enterprises
4) Limited liability of HG enterprises
5) Other legal forms of enterprises with 10 or more employees
that are not high growth
6) Limited liability company with 10 or more employees that
are not high growth
The shift-share analysis is applied both employment and
turnover growth
Paris, November 26, 2008
21th Meeting of Wiesbaden
Group on BR – Roundtable
on Business Survey Frames
Shift-share analysis (3)
Components of employment growth, identified by shift-share analysis of 6 sub-populations
Employment
80.0%
60.0%
40.0%
20.0%
0.0%
-20.0%
<10 o ther
LF
<10 LL
H G o ther
LF
H G LL
-40.0%
TC
Paris, November 26, 2008
IM
CE
>10 no H G
o ther LF
>10 no H G
LL
21th Meeting of Wiesbaden
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Shift-share analysis (4)
Components of turnover growth, identified by shift-share analysis of 6 sub-populations
Turnover
160.0%
140.0%
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
-20.0%
<10 o t her LF
<10 LL
HG o t her LF
HG LL
-40.0%
TC
Paris, November 26, 2008
IM
CE
>10 no HG
o t her LF
>10 no HG LL
21th Meeting of Wiesbaden
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on Business Survey Frames
Performance Indicators (1)
Four economic performance indicators from
balance-sheet accounts are used as significant instruments
to quantify the economic and financial performance of the
HG enterprises
1) The turnover by persons employed
2) The value added by persons employed
3) The ROE (Return on Equity)
4) The ROS (Return on Sales)
These four indicators are calculated only for
the limited liability companies:
1) Limited liability company with less 10 employees
2) Limited liability of HG enterprises
3) Limited liability company with 10 or more employees
that haven’t high growth
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on Business Survey Frames
Performance Indicators (2)
1) The turnover by persons employed
This indicator represents the most immediate measure of business output.
It is calculated as ratio among the revenues of the sales and the number of
persons employed
Turnover by persons em ployed (thousands of euro)
600.0
500.0
400.0
300.0
200.0
100.0
0.0
Industry
Costruction
HG
Paris, November 26, 2008
Trade
<10
>= 10
Services
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on Business Survey Frames
Performance Indicators (3)
2) The value-added by persons employed
This indicator represents the “real” wealth created by the processes
of production of goods and services that pay for all the production factors.
It is calculated as ratio between the characteristic value added (the difference
between the value of the production and the costs of subjects, services and
enjoyment of goods) and the number of the persons employed
Value-added by persons em ployed (thousands of euro)
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Industry
Costruction
HG
Paris, November 26, 2008
Trade
<10
>= 10
Services
21th Meeting of Wiesbaden
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on Business Survey Frames
Performance Indicators (4)
3) The ROE (Return on Equity)
This indicator represents the productivity obtained by the proper capital
in terms of profit. It expresses the return that a firm has had on the net
property (that is the “inside” source of financing).
It is calculated as ratio between the profits of exercise and the net property
ROE
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Industry
Costruction
HG
Paris, November 26, 2008
Trade
<10
>= 10
Services
21th Meeting of Wiesbaden
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Performance Indicators (5)
4) The ROS (Return on Sales)
This indicator measures the profitability of the sales in terms of characteristic
management. Is an indicator influenced by the sector in which the firm operates.
It serves for measuring the return of the sales on the profits
ROS
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Industry
Costruction
HG
Paris, November 26, 2008
Trade
<10
>= 10
Services
An Empirical Analysis to investigate on High Growth
definition
Conclusions:
The analysis carried out in this work shows that the high growth are the
enterprises with more performance than others, above all in terms of turnover.
The performance economic indicators show that the high growth are the best in
terms of profitability, especially in the sector of Industry less in the sector of
services.
The threshold of 10 employees according to which the high growth are
identified, is too much restrictive for those sectors characterized by micro and
small enterprises.
To use a growth composite indicator (we are going to work on this issue) that
take account of both the arithmetic average and the characteristic dimension of
the economic activity sectors, would be desirable.
Paris, November 26, 2008