Exchangeability of growth measures of professional service firms

Abstract

Research on firm growth shows that results vary depending on the measure of growth used. Many empirical studies have tested the comparability of firm growth measures. This study examined concurrent validity among the growth measures of professional service firms (PSFs). Specifically, we examined the absolute and relative growth rates of 87 patent firms from 1998 to 2008 using five growth variables—firm sales, total number of patent applications, number of domestic patent applications, number of patent attorneys, and number of employees. We found that concurrent validity was high only between number of total patent applications and number of domestic patent applications. The reason may be that for patent firms, other factors are in play, such as level of business diversification and outsourcing, range of clients, and number of support personnel who are not formally qualified. This shows that PSFs and private sector firms exhibit different growth paths. However, this also suggests that it is not sufficient to measure firm growth using growth measures that do not consider differences among private sector firms in different sectors or firms within the same sector but with different structures.

Keywords

• concurrent validity
• growth measures
• firm growth
• professional service firms