Inter-relationship between firm growth and profitability

Jang, SooCheong; Park, Kwangmin

doi:10.1016/j.ijhm.2011.03.009

Cited by 116 publications

(111 citation statements)

References 44 publications

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“…When evaluating the results, it needs to be noted, that growth potential is a reversed scale, and so the correlations indicate opposite direction relationships to the other constructs. The support of H1 -a positive relationship between firm growth and past profitability -is aligned with extant literature demonstrating a positive relationship between past profit and current firm growth (Davidsson et al, 2009;Jang & Park, 2011;Lee, 2014). Furthermore, it corresponds to the findings of Hall and Tochterman (2008) on Australian firms, empirically supporting that past profitability is related to current firm growth.…”

Section: Results and Implicationssupporting

confidence: 81%

“…Studies examining the relationship between past profitability and current firm growth predominantly find positive relationships (Jang & Park, 2011;Lee, 2014). Although Davidsson et al (2009) demonstrate a significant relationship, in the Australian context Fitzsimmons et al (2005) find the growth-profitability relationship ambiguous.…”

Section: Hypothesising the Profit-growth Nexusmentioning

confidence: 99%

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Testing relationships between firm size and perceptions of growth and profitability: An investigation into the practices of Australian ICT SMEs

Perényi

Yukhanaev

2016

Journal of Management & Organization

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Gibrat’s Law mandates the independence of firm size and growth, while the resource-based view of the firm implies a positive relationship between firm size and profits, to be concluded in a profit–growth trade-off. Empirical studies of entrepreneurial success however, have demonstrated firms’ ability to reach a state of high growth and profitability, despite the trade-offs encapsulated within the profit–growth nexus. Upon assessing the relationships between past profitability, current firm growth and size in Australian ICT SMEs, results demonstrate positive relationships between all three indicators. This suggests that profitability can be considered the most important precursor of entrepreneurial success, and also that successful businesses do not suffer from the trade-offs implied by theory.

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Section: Results and Implicationssupporting

confidence: 81%

Section: Hypothesising the Profit-growth Nexusmentioning

confidence: 99%

Testing relationships between firm size and perceptions of growth and profitability: An investigation into the practices of Australian ICT SMEs

Perényi

Yukhanaev

2016

Journal of Management & Organization

View full text Add to dashboard Cite

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“…al. (2010) found that size has a negative relationship with firm value, which is consistent with Jang and Park (2011). Therefore, we develop the hypothesis as follows:…”

Section: Size and Firm Valuesupporting

confidence: 70%

“…However, there are studies that find different results. For example, Jang and Park (2011) suggested that there is a negative relationship between firm size and firm value.…”

Section: Variablesmentioning

confidence: 99%

Firm Value and External Financing Needs

Karakaya¹,

Kurtaran²,

Kurtaran³

2017

IJEF

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The purpose of this paper is to examine effects on firm value of external financing needs and BIST 100 index to firms listed in the index of Istanbul Stock Exchange manufacturing industry by the panel data analysis methods in the period of 2008-2012.As a result of dynamic panel data analysis, it has be found to increase value of firms by previous term value of firm, being the BIST 100 index, the external financing needs, the financial leverage ratio, firm size and profitability. It was observed that manufacturing firms in Turkey are firms having growth potential, profitable at low rate, whereas financial risk of them is high.It has been found that firms benefit from shorts term debt market being lower borrowing cost and risk because long term debt market hasn"t developed in Turkey leads to positive relationship between external financing needs and firm value. Additionally, It is determined that value of firms included in the index is higher from without because firms are necessary providing certain conditions to take part in the BIST 100.

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“…In other words, they identified the Penrose effect, which means that the current rate of returns acts as a positive factor for the future growth rate of firm size, while the current growth rate of firm size has a negative effect on future rate of returns. Jang and Park [45] conducted an empirical study on the relationship between growth and profitability using a panel data of restaurants. Their findings showed that past profitability of restaurants has a positive effect on current growth, and past growth has a negative effect on the growth rate.…”

Section: Relationship Between Firm Growth and Profitability And Our Hmentioning

confidence: 99%

The Dynamic Relationship between Growth and Profitability under Long-Term Recession: The Case of Korean Construction Companies

Yoo

Kim

2015

Sustainability

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Abstract:We conducted an empirical analysis of the dynamic relationship between growth and profitability for small-and medium-sized construction companies that faced long-term economic stagnation in Korea. The period of the analysis spanned 2000 to 2014, and the full period was divided into two halves: before the 2008 global financial crisis and after it. Our empirical model was based on the system generalized method of moments model, and 264 construction companies were used as the study sample. The results of the empirical analysis are as follows. (1) A profitability-driven management strategy limits company growth, thus prolonging the economic downturn; (2) When the macroeconomic environment is relatively stable, high growth in the previous period fosters profitability in the current period. This implies that the phenomenon of dynamic increasing returns is present in the Korean construction industry, and learning through growth enhances productivity and profitability. Consequentially, a strategy oriented towards short-term profitability (popular with small-and medium-sized Korean construction companies) makes the corporate management less resilient, causing them to select "de-growth" during the long-term stagnation by decreasing their scale of operations. Accordingly, it is important for companies to maintain the balance between growth and profitability.

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Inter-relationship between firm growth and profitability

Cited by 116 publications

References 44 publications

Testing relationships between firm size and perceptions of growth and profitability: An investigation into the practices of Australian ICT SMEs

Testing relationships between firm size and perceptions of growth and profitability: An investigation into the practices of Australian ICT SMEs

Firm Value and External Financing Needs

The Dynamic Relationship between Growth and Profitability under Long-Term Recession: The Case of Korean Construction Companies

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