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Dynamics of Growth and Profitability: The Case of Japanese Manufacturing Firms

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  • Akihiko Nakano
  • Donghun Kim

Abstract

This study investigates interaction between firm growth and profitability using panel data on 1633 Japanese manufacturing firms for 1987-2007. Our estimation results generally confirm that firms face a trade-off between growth and profitability and show that, in Japanese manufacturing firms, the link between prior growth and current profits is much stronger than the link between prior profits and current growth. Therefore, the study confirms that current profits are a pre-requisite for future growth while excessive current growth is detrimental to future profits. It is found, however, that in some sectors, such as the automobile industry and the chemical industry, high growth and high profit rates can be achieved at the same time without damaging profitability.

Suggested Citation

  • Akihiko Nakano & Donghun Kim, 2011. "Dynamics of Growth and Profitability: The Case of Japanese Manufacturing Firms," Global Economic Review, Taylor & Francis Journals, vol. 40(1), pages 67-81.
  • Handle: RePEc:taf:glecrv:v:40:y:2011:i:1:p:67-81 DOI: 10.1080/1226508X.2011.559329
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    References listed on IDEAS

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    Cited by:

    1. Juan Federico & Joan-Lluis Capelleras, 2015. "The heterogeneous dynamics between growth and profits: the case of young firms," Small Business Economics, Springer, vol. 44(2), pages 231-253, February.
    2. Hasan Ayaydin & Pinar Hayaloglu, 2014. "The Effect of Corruption on Firm Growth: Evidence from Firms in Turkey," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(5), pages 607-624, May.

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