Inside the Virtuous Cycle between Productivity, Profitability, Investment and Corporate Growth: An Anatomy of China Industrialization

Xiaodan Yu, Giovanni Dosi, Marco Grazzi and J. Lei

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: This article explores the dynamics of market selection by investigating of the relationships linking productivity, profitability, investment and growth, based on China's manufacturing firm-level dataset over the period 1998-2007. First, we find that productivity variations, rather than relative levels, are the dominant productivity-related determinant of firm growth, and account for 15%-20% of the variance in firms' growth rates. The direct relation between profitability and firm growth is much weaker as it contributes for less than 5% to explain the different patterns of firm growth. On the other hand, the profitability-growth relationship is mediated via investment. Firm's contemporaneous and lagged profitabilities display positive and significant effect on the probability to report an investment spike, and, in turn, investment activity is related to higher firm growth.

JEL-codes: D22 L10 L20 L60 O30 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-bec, nep-cse, nep-eff, nep-tid and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Inside the Virtuous Cycle between Productivity, Profitability, Investment and Corporate Growth: An Anatomy of China Industrialization (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:wp1006

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