The heterogeneous dynamics between growth and profits: the case of young firms

The heterogeneous dynamics between growth and profits: the case of young firms While there is an increasing interest in the literature about the relationship between profits and business growth, the empirical evidence is mixed and inconclusive. This can be explained by the difficulty of fully addressing the complex nature of this relationship. Building on resource-based and evolutionary considerations, the present study investigates the dynamics between growth and profits of young firms by explicitly considering the endogeneity and heterogeneity aspects of the relationship. Data are based on a cohort of Spanish manufacturing firms tracked during the period 1996–2010. The results indicate that young firm growth has a positive impact on profits. In contrast, the effect of profits on growth is not significant. Neither is there a significant correlation between past and current growth. Importantly, we find that the results are strongly influenced by inter-firm heterogeneity. Implications from these findings are discussed. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

The heterogeneous dynamics between growth and profits: the case of young firms

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Management/Business for Professionals; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1007/s11187-014-9598-9
Publisher site
See Article on Publisher Site

Abstract

While there is an increasing interest in the literature about the relationship between profits and business growth, the empirical evidence is mixed and inconclusive. This can be explained by the difficulty of fully addressing the complex nature of this relationship. Building on resource-based and evolutionary considerations, the present study investigates the dynamics between growth and profits of young firms by explicitly considering the endogeneity and heterogeneity aspects of the relationship. Data are based on a cohort of Spanish manufacturing firms tracked during the period 1996–2010. The results indicate that young firm growth has a positive impact on profits. In contrast, the effect of profits on growth is not significant. Neither is there a significant correlation between past and current growth. Importantly, we find that the results are strongly influenced by inter-firm heterogeneity. Implications from these findings are discussed.

Journal

Small Business EconomicsSpringer Journals

Published: Jul 24, 2014

References

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