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

Juan Federico () and Joan-Lluis Capelleras ()

Small Business Economics, 2015, vol. 44, issue 2, 253 pages

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. Copyright Springer Science+Business Media New York 2015

Keywords: Young firms; Firm growth; Profits; System GMM; Endogeneity; Heterogeneity; L25; L26; M13 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:sbusec:v:44:y:2015:i:2:p:231-253

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DOI: 10.1007/s11187-014-9598-9

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