 The use of financial data to monitor competing models of firm growthTarek Ibrahim Eldomiaty and Mohamed Hashem Rashwan International Journal of Economics and Business Research, 2013, vol. 6, issue 1, 69-86 Abstract: This paper examines three possible explanations for firm growth: 1) a firm grows according to the growth of sales revenue; 2) a firm grows according to cost savings; 3) a firm grows according to the two factors simultaneously. The paper introduces a new measure for firm growth based on sales-weighted growth of fixed assets. The estimation method uses the properties of the discriminant analysis to build three Z-score models, each of which discriminates low-growth firms from high-growth firms based on: a) sales ratios; b) cost ratios; c) sales and cost ratios together. The results show that the three discriminant models have approximately the same discriminant power (60%). This means that revenue and cost factors are used simultaneously as drivers of firm growth. This result supports the notion that Gibrat's and Viner's theories of firm growth complement each other. The results have practical implications for financial managers regarding the sales and cost factors that are to be considered to promote firm growth. Keywords: firm growth theory; Z-score models; DJIA; sales ratios; cost ratios; financial data; firm growth models; sales revenue; cost savings; fixed assets. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:ijecbr:v:6:y:2013:i:1:p:69-86 Access Statistics for this article More articles in International Journal of Economics and Business Research from Inderscience Enterprises Ltd |
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