The determinants of growth in the U.S. information and communication technology (ICT) industry: A firm-level analysis

Using a mildly unbalanced panel data set of 85 U.S. information and communication technology (ICT) firms that survived for 24 years from 1990 to 2013, we examine the effect of firm size, agency costs, R&D investments, capital structure, profitability, and the Great Recession of 2007-2009 on firm growth. We overcome several econometric issues such as the problems of unobserved heterogeneity, persistence, and endogeneity by adopting the system GMM estimator for linear dynamic panel models. We document that firm-specific characteristics drive growth in the ICT industry, contrary to the well-known Gibrat's law. In particular, we find compelling evidence that in the U.S. ICT industry, firm growth depends on firm size. Differing from most findings in the literature, however, small firms in the ICT industry do not grow faster than large firms. We find a non-linear and concave-in-size relationship between growth and size. We also find that: a) firm growth exhibits positive persistence; b) agency costs and financial leverage impede firm growth; and c) R&D investment and financial performance facilitate growth. As expected, the Great Recession (2007-2009) curbed firm growth in the ICT industry.