Jagadeesh Sivadasan, Natarajan Balasubramanian, Ravi Dharwadkar and Charlotte Ren. Strategic Management Journal, 2024, 46(1): 49-81. https://doi.org/10.1002/smj.3641

Research Summary. Although firms grow using many modes, studies typically examine individual modes, usually transactional. This impedes our understanding of the relative importance of growth modes, correlations amongst them, and their associations with competition and firm performance. To shed light on these aspects, we decompose employment growth in all U.S. firms (2004–2013) into seven modes. We find that organic modes such as opening or closing plants contribute more than transactional modes such as acquisitions and sell-offs, and that growth modes exhibit age-size differences and are generally positively correlated within firms. Trade competition in manufacturing increased closures and decreased acquisitions but had no effect on new units. Transactional growth positively correlates with future survival, unlike organic growth. Together, these findings expand our understanding of firm growth and compel us to view it as a composite of multiple modes.

Managerial Summary. Managers have many ways to grow a firm, but studies typically emphasize transactional modes such as acquisitions and selloffs. Using data on all US firms over 2004–2013, we study seven growth modes in an integrated and comprehensive model. We find that organic modes contribute more to growth than transactional modes, that young, large firms grow less relative to old, large firms, that when firms grow (shrink), they tend to grow (shrink) using multiple modes simultaneously and that growth modes vary in their association with competition. Importantly, transactional growth positively correlates with future survival, unlike organic growth. Together, these findings not only suggest that growth modes vary in their contribution to firm growth but also that they may differently influence subsequent performance.