Beyond the Intuition of Economies of Scale: A Firm-Level Examination of Growth, Size, and Operating Performance

Sammanfattning

The purpose of this thesis is to examine whether the commonly held intuition - that growing firms will benefit from economies of scale - is supported by firm-level accounting data. Although theory predicts that expanding firms should experience declining costs relative to sales and rising profitability, empirical evidence remains mixed. Using a panel dataset of 6817 firm-year observations for Swedish high-growth firms (2013-2019), we estimate fixed-effects regression models to capture within-firm changes in size, and indicators of economies of scale. By including an interaction between firm growth and firm size we account for the diminishing nature of economies of scale. Re-estimating the regressions for industry subsamples allows us to identify industry differences. Our results show that firm growth tends to be associated with lower production and overhead costs relative to sales and higher profitability. This provides an initial indication that economies of scale can be captured in firm-level accounting data. Due to the systematically insignificant interaction term, we find no evidence that these relationships diminish as firms grow. We do, however, find that the realisation of economies of scale varies across industries. Our findings underscore the complexity of economies of scale in practice and encourage further research.