Ann Arbor Times

A recent study by Jagadeesh Sivadasan, a professor at the University of Michigan's Ross School of Business, examines the growth strategies of U.S. firms from 2004 to 2013. The research highlights that organic growth strategies, such as opening new plants or expanding operations, play a more significant role in firm and industry growth compared to transactional strategies like mergers and acquisitions.

However, Sivadasan notes that "transactional growth is more positively correlated with future survival." This suggests that while organic methods contribute more to immediate expansion, transactional approaches may enhance long-term viability.

The study also delves into the impact of the 2008 financial crisis on these growth modes. It found that overall employment declined significantly during this period, primarily due to layoffs rather than business closures. There was also a marked reduction in transactional activities due to fewer buyers being available for businesses and assets.

Sivadasan's findings challenge conventional beliefs about firm growth across different sizes and ages. He states, "Among large firms, young firms show slower growth than old ones," which contradicts the common view that younger firms grow faster. In contrast, older small firms tend to grow slower than their younger counterparts.

Discussing the correlation between transactional growth and firm survival, Sivadasan explains that it is "significantly positively correlated with future growth and survival." This could be because larger firms engage in acquisitions or industries consolidate through mergers before experiencing subsequent growth.

The implications for business leaders are significant. While government policies often focus on supporting small businesses due to their potential for positive growth, Sivadasan warns against reallocating resources too broadly towards younger firms without considering their size-related challenges. He advises managers to consider acquisitions carefully as they can be beneficial but also challenging in terms of integration and cost management.