Are small firms really sub-optimal?: compensating factor differentials in small dutch manufacturing firms

The advent of a growing share of small firms in modern economies raises some intriguing questions. The most intriguing question undoubtedly is why so many smaller firms, which have traditionally been classified as sub-optimal scale firms, can exist. We suggest that, through pursuing a strategy of compensating factor differentials, that is by remunerating and deploying factors of production differently than their larger counterparts, small firms are able to compensate for size-inherent cost disadvantages. Using a sample of over seven thousand Dutch manufacturing firms, we find considerable evid... Mehr ...