Review of Industrial Organization 12: 231–241, 1997.
1997 Kluwer Academic Publishers. Printed in the Netherlands.
The Impact of Size and Age on Firm-Level
Performance: Some Evidence from India
SUMIT K. MAJUMDAR
University of Michigan, Business School, Ann Arbor, MI 48109, U.S.A.
Abstract. Using contemporary data for an extensive sample of 1020 Indian ﬁrms, this paper investi-
gates the impacts that size and age of ﬁrms have on ﬁrm-level productivity and proﬁtability. In India
older ﬁrms are found to be more productive and less proﬁtable, whereas the larger ﬁrms are, con-
versely, found to be more proﬁtable and less productive. These performance differences are explained
as arising from the market-restricting industrial policies that have been followed in India over the
past three decades.
Key words: Firm-level proﬁtability, size of ﬁrms, age of ﬁrms, Indian industry.
JEL Classiﬁcation: D 21; D 24; L 52; O 53.
The issues of whether larger ﬁrms are superior in performance to smaller ﬁrms,
or vice-versa, and whether older ﬁrms are superior in performance to younger
ﬁrms, or vice-versa, have generated large amounts of theoretical and empirical
research in the economics, management and sociology disciplines. Yet, the theo-
retical postulates and empirical evidence are equivocal, at best, on the impacts that
size and age have on ﬁrm-level performance, and it is likely that the true nature
of the relationship is very environment-speciﬁc, and highly dependent on a num-
ber of institutional factors which affect the performance of ﬁrms. The hypotheses
that derive from theory with respect to the impact of size and age on ﬁrms’ per-
formance are mediated by the institutional environment that ﬁrms face, and it is
feasible that the equivocality in the literature arises because institutional issues,
which necessarily are country-speciﬁc, have not been taken into account.
This paper brieﬂy reports the results of an empirical study investigating the
impacts that size and age have on the economic performance of ﬁrms in Indian
industry. India is a unique economy in that attitudes with respect to the role and
existenceof large ﬁrms in the economy have been ambivalent, whilethearticulation
and administration of policy have been at cross-purposes with each other (Jalan,
Financial support from the Center for International Business Education and the Ofﬁce of the
Vice Provost for Academic and Multicultural Affairs, both of the University of Michigan, is gratefully