Entrepreneurship and New Firm Growth
Testing Hypotheses Using the survey data collected, two models were used to understand the relationship between firm growth and various founder and market characteristics. The first model used an ordinary least squares regression to look at the determinants of firm growth as measured by average sales growth during the previous five years (see box C.1 in appendix C for details of the specification). The following hypotheses were tested: H1: Younger, smaller firms grow faster. H2: Founders’ expertise at firm setup is very important for firm growth. Prior experience in industry, especially in the same sector, positively affects growth prospects. Moreover, founders’ education is positively related to firm growth. H3: Firm innovative activity is strongly connected to growth prospects. H4: A strategy of cost savings and unique product offerings in the market underwrites firm growth. H5: An ability to access external capital is positively related to firm growth prospects. Controls included market environment characteristics and growth trends of other companies in the same sector. The results for the Armenian sample (see table C.1 in appendix C) show that firm characteristics, entrepreneur characteristics, innovative activity, and firm strategy have significant explanatory power over firm sales growth. Younger firms with younger founders grew faster. Founders’ prior industry experience was important for firm growth. The introduction of both innovative and unique products and services was positively associated with higher firm growth. A lowcost strategy was also associated with higher firm growth. Funding and market environment variables did not explain firm growth. Finally, the dynamism of the sector in which the company operates proved to be a significant explanatory factor. The results for Georgia are mixed (see table C.1 in appendix C). Only three variables besides the control were statistically significant: firm size, industry experience of the firm founders, and ability to attract venture capital. All were positively related to firm growth. Fast-growing sectors were associated with fastgrowing firms. A second model to explain the determinants of firm innovation used a probit regression (see box C.2 in appendix C for the specifications). The following hypotheses were tested: H1: Younger, smaller firms innovate more. H2: Firms in high-tech sectors and firms undertaking R&D innovate more. H3: Founders’ expertise at firm setup is an important indicator of innovation propensity. Founders’ education background, especially in technical and engineering fields, is positively related to company innovativeness. Fostering Entrepreneurship in Armenia • http://dx.doi.org/10.1596/978-1-4648-0064-1
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