CRIEFF Discussion Paper Number 0907
Entrepreneurial
Orientation, Intangible Assets and Firm Growth: the impact of ‘Spirit and
Material’ on the growth of Chinese private firms
Gavin C. Reid and Zhibin
Xu
Abstract
This paper has three contributions. First, it shows how
field work within small firms in PR Chinese has provided new evidence which
enables us to measure and calibrate Entrepreneurial Orientation (EO), as
‘spirit’, and Intangible Assets (IA), as ‘material’, for use in models of small
firm growth. Second, it uses inter-item correlation analysis and both
exploratory and confirmatory factor analysis to provide new measures of EO and
IA, in index and in vector form, for use in econometric models of firm growth.
Third, it estimates two new econometric models of small firm employment growth
in PR China, under the null hypothesis of Gibrat’s
Law, using our two new index-based and vector-based measures of EO and IA.
Estimation is by OLS with adjustment for heteroscedasticity,
and for sample selectivity.
Broadly, it finds that EO attributes have had little
significant impact on small firm growth, and indeed innovativeness and
pro-activity paradoxically may even dampen growth. However, IA attributes have
had a positive and significant impact on growth, with networking, and
technological knowledge being of prime importance, and intellectual property
and human capital being of lesser but still significant importance. In the
light of these results, Gibrat’s Law is generalized,
and Jovanovic’s learning theory is extended, to emphasise the importance of IA to growth.
These findings cast new empirical light on the oft-quoted
national slogan in PR China of “spirit and material”. So far as small firms are
concerned, this paper suggests that their contribution to PR China’s remarkable
economic growth is not so much attributable to the ‘spirit’ of enterprise (as
suggested by propaganda) as, more prosaically, to the pursuit of the
‘material’.
JEL Classifications: L21, L26, L53, M21
Keywords:
entrepreneurial orientation; intangible assets; small business growth; PR China
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