Growing profitable or growing from profits: Putting the horse in front of the cart?
AbstractFirm growth is almost universally portrayed as a good thing, and is commonly used as a measure of success. Applying resource-based reasoning, we argue that growth is often not a sign of sound development. Specifically, we hypothesize that firms which grow without first securing high levels of profitability tend to be less successful in subsequent periods compared to firms that first secure high profitability at low growth. Empirical tests using two large, longitudinal data sets confirm that the profitable low growth firms are more likely to reach the desirable state of high growth and high profitability. In addition, they have a decreased risk of ending up performing poorly on both performance dimensions compared with firms starting from a high growth, low-profitability configuration. The results suggest that academics, managers, investors and policy-makers may benefit by adopting a more nuanced view of firm growth that explicitly incorporates its intricate relationship with profitability.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Business Venturing.
Volume (Year): 24 (2009)
Issue (Month): 4 (July)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jbusvent
Growth Profitability Success Performance Resource-Based View;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and the Sustainability of Competitive Advantage: Reply," Management Science, INFORMS, vol. 35(12), pages 1514-1514, December.
- Gupta, Vinod K, 1981. "Minimum Efficient Scale as a Determinant of Concentration: A Reappraisal," The Manchester School of Economic & Social Studies, University of Manchester, vol. 49(2), pages 153-64, June.
- Noel Capon & John U. Farley & Scott Hoenig, 1990. "Determinants of Financial Performance: A Meta-Analysis," Management Science, INFORMS, vol. 36(10), pages 1143-1159, October.
- Yasemin Y. Kor & Joseph T. Mahoney, 2004. "Edith Penrose's (1959) Contributions to the Resource-based View of Strategic Management," Journal of Management Studies, Wiley Blackwell, vol. 41(1), pages 183-191, 01.
- Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
- Margaret A. Peteraf & Jay B. Barney, 2003. "Unraveling the resource-based tangle," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 24(4), pages 309-323.
- Chandler, Gaylen N. & Jansen, Erik, 1992. "The founder's self-assessed competence and venture performance," Journal of Business Venturing, Elsevier, vol. 7(3), pages 223-236, May.
- Alex Coad, 2007.
"A Closer Look at Serial Growth Rate Correlation,"
Review of Industrial Organization,
Springer, vol. 31(1), pages 69-82, August.
- Alvarez, Sharon A. & Barney, Jay B., 2004. "Organizing rent generation and appropriation: toward a theory of the entrepreneurial firm," Journal of Business Venturing, Elsevier, vol. 19(5), pages 621-635, September.
- Robert E. Carpenter & Bruce C. Petersen, 2002. "Is The Growth Of Small Firms Constrained By Internal Finance?," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 298-309, May.
- Gavin C Reid, 1994. "Early Life-Cycle Behaviour of Micro-Firms in Scotland," CRIEFF Discussion Papers 9410, Centre for Research into Industry, Enterprise, Finance and the Firm.
- Shaker A. Zahra & Harry J. Sapienza & Per Davidsson, 2006. "Entrepreneurship and Dynamic Capabilities: A Review, Model and Research Agenda," Journal of Management Studies, Wiley Blackwell, vol. 43(4), pages 917-955, 06.
- Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
- Haim Mendelson, 2000. "Organizational Architecture and Success in the Information Technology Industry," Management Science, INFORMS, vol. 46(4), pages 513-529, April.
- Ingemar Dierickx & Karel Cool, 1989. "Asset Stock Accumulation and Sustainability of Competitive Advantage," Management Science, INFORMS, vol. 35(12), pages 1504-1511, December.
- Cliff, Jennifer E. & Jennings, P. Devereaux & Greenwood, Royston, 2006. "New to the game and questioning the rules: The experiences and beliefs of founders who start imitative versus innovative firms," Journal of Business Venturing, Elsevier, vol. 21(5), pages 633-663, September.
- Nuri Yildirim, 2011. "No Appealing Future For High Growth – Low Profitability Firms: Evidence from Turkey’s Top 1000," Working Papers 2011/2, Turkish Economic Association.
- Rosenbusch, Nina & Brinckmann, Jan & Müller, Verena, 2013. "Does acquiring venture capital pay off for the funded firms? A meta-analysis on the relationship between venture capital investment and funded firm financial performance," Journal of Business Venturing, Elsevier, vol. 28(3), pages 335-353.
- Coad, Alex & Frankish, Julian & Roberts, Richard G. & Storey, David J., 2013. "Growth paths and survival chances: An application of Gambler's Ruin theory," Journal of Business Venturing, Elsevier, vol. 28(5), pages 615-632.
- Douglas, Evan J., 2013. "Reconstructing entrepreneurial intentions to identify predisposition for growth," Journal of Business Venturing, Elsevier, vol. 28(5), pages 633-651.
- Eggers, Fabian & O’Dwyer, Michele & Kraus, Sascha & Vallaster, Christine & Güldenberg, Stefan, 2013. "The impact of brand authenticity on brand trust and SME growth: A CEO perspective," Journal of World Business, Elsevier, vol. 48(3), pages 340-348.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.