Assessing Public Policy Impact on the Sustainable Growth Rate of New Ventures

摘要

The growth of firms is fundamentally based on self-reinforcing feedback loops,one of the most important of which involves cash flow. When profit margin is positive,sales generate cash, which may then be reinvested to finance the operating cash cycle.We analyze simulations of a sustainable growth model of new ventures to assess theimportance of taxes, and regulatory costs in determining growth. The results suggest thatnew ventures are particularly vulnerable to public policy effects, since their workingcapital resource levels are minimal, and they have few options to raise external fundsnecessary to fuel their initial operating cash cycles. Clearly, this has potentialconsequences in terms of gaining competitive advantage from experience effects, word ofmouth, scale economies, etc. The results of this work suggest that system dynamicsmodeling may provide public policy makers a cost effective means to meet the spirit ofthe U.S. Regulatory Flexibility Act.