Swimming upstream throughout the turmoil: Evidence on firm growth during the great recession
| Published date | 01 July 2021 |
| Author | Alessandro Arrighetti,Fabio Landini,Andrea Lasagni |
| Date | 01 July 2021 |
| DOI | http://doi.org/10.1111/sjpe.12272 |
322
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wileyonlinelibrary.com/journal/sjpeScott J Polit Econ. 2021;68:322–344.
© 2021 Scottish Ec onomic Society
1 | INTRODUCTION
Recessions are generally recognized as having significant influence on industrial structure and firm dynamics
(Campbell, 1998; Ge roski & Gregg, 1997). Models inves tigating the relationship b etween economic cycle an d in-
dustrial str ucture highlight t he role of the cleansin g effect (Cabal lero & Hammour, 1994); in a given indust ry, where
firms with dif ferent levels of producti vity are active, a signif icant decrease in demand d oes not uniformly reduce
the turnover of all p roduction units. To the contrar y, economic recessions mainly hi t the less innovative, smaller
and less effi cient firms and make them exit th e market (Alchian, 1950; Ericson & Pa kes, 1995; Jovanovic, 1982).
Therefore, during an economic downturn, the cleansing effect increases uniformity within manufacturing sectors
in terms of size, techn ological character istics and perfor mance of the surviving f irms.
Accepted: 7 Janu ary 2021
DOI: 10 .1111/sjpe.1 2272
ORIGINAL ARTICLE
Swimming upstream throughout the turmoil:
Evidence on firm growth during the great
recession
Alessandro Arrighetti1| Fabio Landini1,2 | Andrea Lasagni1
1Department of Economics and
Management , University of Par ma, Parma,
Italy
2ICRIOS, Bocconi University, Milan, Italy
Correspondence
Andrea Las agni, Departm ent of Economics
and Manageme nt, University of P arma,
Parma, Italy.
Email: andrea.lasagni@unipr.it
Abstract
Economic downturns significantly impact on industry and
firm dynamics. During a slowdown, increased competitive
pressure makes less efficient firms more likely to exit (the
cleansing hypothesis). However, evidence on Italian manufac-
turing firms during the Great Recession contrasts with this
view. In fact, a not neglig ible subset of firms grew consider-
ably during the crisis, increasing intra- industry heterogene-
ity. In this paper, we study these swimming upstream firms
(SUFs) and we obtain two results. First, SUFs exhibit a high
capability accumulation profile (innovation, intangibles in-
vestments and internationalization). Second, the impact of
endogenous capability accumulation does not vanish after
controlling for exogenous f actors.
KEYWORDS
cleansing eff ect, crisis, firm per formance, growth, h eterogeneity,
manufacturing industry
|
323
ARRIGHET TI ETAl.
However, some recent contributions question such a conclusion and the effectiveness of the cleansing
mechanism, especially durin g a severe recession. Foster et al. (2016), for ins tance, show that, in the presence
of sharp demand co ntractions, differe nces in the exit and growth rate s between high and low produc tivity es-
tablishment s appear to decline. Sim ilarly, with reference to Japan , Nishimura et al. (2005) o bserve that, in time s
of crisis, effi cient firms in terms of TFP exit at a highe r rate than inefficient one s, suggesting a malfuncti oning
of the natural sel ection mechanism. In ad dition, studies on the het erogeneity of within- industry fi rm dynamics
(Foster et al., 20 08; Landini, 2020; Land ini et al., 2020; Syverson, 20 04; Thomas & D'Aveni, 2009), on the ex-
tensive role of dif ferentiated strategi c profiles (Arrighe tti et al., 2020; Crisc uolo et al., 2010; Helper et al ., 2012)
and on high- growth firms (Davidss on & Delmar, 1997; Holzl, 2009; St am & Wennberz, 20 09) do not call for a
significant mi tigation of the different iation processes in a recessi onary phase. In fact , the maintenance or even
the increase of wi thin- industry h eterogeneity during an ec onomic crisis is fully consiste nt with the hypotheses
developed in these works.
Evidence that an economic downturn increases rather than reduces firm heterogeneity emerges from avail-
able data on the p erformance of a large sa mple of Italian manufac turing firms during t he period 2007– 2012 (for
more informatio n on the data, see Secti on 3). Despite the intensity a nd duration of the recession f or the Italian
manufactu ring system, we obser ve two divergent trends. W hile the majority of fi rms report a signific ant reduc-
tion in activit y (−20% of the yearly turnover) , a significant minority at tain very positive perf ormances; one- thi rd
of production unit s increased sales by an average of 60%; on e- tenth of the firms increas ed sales by as much as
110% (see Fig ure 1). From this p oint of view, the recession hig hlights pro cesses that a re, if not uniq ue, certai nly
not yet adequately examined, par ticularly with regard to the role that swimming upstream firms (SUFs), that is
firms that grow amidst a general tendency towards downsizing, play in overall industry dynamics. Interestingly,
this phenomenon cannot be explained by pre- existing firm heterogeneity since in our data the within- industr y
dispersion (measured as industry- normalized standard deviation) of sales and labour productivity (measured
as added value per employee) increased between 20 07 and 2012 from 2.636 and 1.378 to 3.172 and 6.324,
respectively.
This paper explores the heterogeneity of firm conducts in a recessionary context by focusing on the fac-
tors that distinguish SUFs from other productive units. In par ticular, we focus on two main sets of explicative
FIGURE 1 Evolution of sales acr oss growth quintiles. N otice: growth quintiles ar e computed considering
the distribu tion of sales in 2012 over sales in 2 007. For each reported quintiles of f irms, the figure shows t he
evolution of firm s ales between 2007 and 2 012, using 2007 as a base year
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