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This thesis consists of two parts, both of which can be situated within the growth of firms’ literature. The first section is based on Sutton’s (1998) bounds approach. I firstly verify the proposed method of firm growth as proposed by Sutton and secondly, using this approach I shed light on the evolution of the industrial structure of former centrally planned economies during transition. In the second section I investigate the growth and survival of firms in a leading transition country. As a first step, I explore the market selection process for new firms, this is then followed by examining in greater detail how internal finance impacts on the growth of firms. The purpose of the first chapter is to examine whether the mechanism of firm growth as proposed by Sutton actually occurs, namely that large firms are large as a result of operating across more sub-industries than smaller firms. An alternative mechanism and contrary to the Sutton framework, is that large firms operate in different sub-industries to small firms and that this could be driving the outcome. The problem in determining which mechanism drives the outcome stems from using relatively aggregated data. I show, using less aggregated data for the UK and Belgium, that product count is indeed a key determinant of firm size and in doing so, I verify Sutton’s mechanism of firm growth. In chapter II I investigate the ramifications on the industrial structure of centrally planned economies following the introduction of market forces, which in effect acts as a natural experiment. The initial conditions in centrally planned economies were that of a contrived industrial structure with little inequality and where large vertically integrated firms dominated the landscape. Applying Sutton’s (1998) framework, I examine whether the firm size distribution of three transition countries is converging towards that of an established market economy. In doing so, I am able to highlight differences in equality levels, an important indicator of industrial development and the degree of exporting. I find that for Belgium, Slovenia and Bulgaria the size distribution of firms appears to be converging towards a market economy, with the industrial structure of Ukraine remaining furthest away. In chapter III I study the determinants of firm survival for de novo firms in a leading transition country, Slovenia. In doing so I use a Cox proportional hazard model to shed light on the post entry performance of de novo firms checking whether an efficient market selection process exists. One area that can act as an obstacle in this process is through the way finance was made available in transition countries. Therefore, in this study I consider how a firm’s cash flow and indebtedness impact on its survival. I find that in Slovenia, the market selection process appears to resemble that of a market economy. In the final chapter, chapter IV, I investigate in more detail the influence of internal cash flow on the growth of firms. Slovenia, despite adopting reforms in key areas, was behind other transition countries in the development of its financial sector. In this chapter I investigate the role of internal finance on the growth of firms in Slovenia and compare these findings with Belgium. I find that firms in Slovenia are more sensitive to internal financing than their Belgian counterparts and that, although Slovenian firms are no longer recipients of soft budget constraints, the financial environment is not yet fully functional In my thesis, I shed light on the mechanism through which firms grow while also investigating two defining aspects of transition economies. In the first chapter I examine whether company size is mainly an outcome of the number of its products and in doing so I verify a theory proposing that firms grow by expanding their product lines or geographical areas. In addition, I show that firms in more mature industries are associated with having a higher number of products than firms in younger industries. This theory of firm growth shows that a minimum degree of inequality exists and using this framework, I examine a defining aspect of transition economies, namely their industrial structure. It has been shown that the industrial structure of a country is a key indicator of its industrial development so by examining the industrial structure of transition economies I am able to determine whether they are converging towards that of a market economy. I find the industrial structure of countries further along in the transition process to most resemble that of a market economy. A second defining element of transition economies relates to the financing of firms through soft budget constraints or ‘soft loans’. I find for a leading transition economy that firms are no longer recipients of soft loans and appear to be facing hard budget constraints.