Network effects, organizational size and organizational growth

In this dissertation, I ask the following questions: (i) Does a firm's size affect its rate of growth in a network externality environment? (ii) Does a firm's size have the same effect on a firm's rate of growth in network externality environments as it does in non-network externality environments? In answering these questions, I argue that presence of network externalities provides firms with powerful benefits leading to a positive relationship between a firm's size and its rate of growth. However, the theoretical literature on network externalities suggests that the effects of network externalities come into play only after a critical mass has been reached. Thus, the relationship between firm size and growth is likely to be nonmonotonic.; However, research on the relationship between firm size and growth indicates that a firm's growth rate is negatively related to its size. This leads me to propose and test two hypotheses. In the first hypothesis, I argue that the growth rate of a firm that operates in an industry with network externalities will first decrease with size. However, beyond some optimal level, the firms's growth rate will increase with size. In the second hypothesis, I argue that in the absence of network externalities, a firm's growth rate will be negatively related to its size. This hypothesis is consistent with the existing literature on the relationship between firm size and growth.; Empirical validation of the results is done through a longitudinal study using industry segment data from the BIIS file in COMPUSTAT. Strong support was provided for Hypothesis One in each of the three industries that were chosen. Hypothesis Two received strong support in two of the three industries that were chosen and weak support in the third industry.