Performance and Optimality for High Technology Firms: An empirical analysis of growth and innovation

This paper examines performance empirically, in terms of growth, innovation and optimality, for firms active in the risky area of high technology enterprise. Econometric results are presented on Gibrat’s Law and the Schumpeterian Hypothesis. Gibratian estimates suggest a short-run equilibrium size of just 100 employees, but a medium term equilibrium size of about 1000 employees if innovation is to be optimised. Schumpeterian estimates suggest that firms must grow, in the long run, to much larger sizes - of beyond 3,000 employees - to achieve Schumpeterian benefits of potentially unlimited scale economies in R&D. We argue that the principal way to achieve this must be by takeovers and mergers. We illustrate this with two brief company case studies.