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No Appealing Future For High Growth – Low Profitability Firms: Evidence from Turkey’s Top 1000


  • Nuri Yildirim

    (Yasar University)


The view that profitability, not growth, is the driving force behind the firm performance, and unprofitable high growth can not lead to financial success has often been discussed in the literature. In this study, I tested this hypothesis on Turkey’s top 1000 data using an extended version of the method of Davidson et al. (2009). My sample strongly supports the hypothesis that controlling for leverage, low growth-high profitability (profit) firms outperform high growth-low profitability (growth) firms regarding both directions of their transition to an upper state and a lower state in subsequent periods. The hypothesis that controlling for type of firm (growth or profit firm), leverage matters with respect to firm’s future performance is weakly supported by 3-year transition data.

Suggested Citation

  • 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.
  • Handle: RePEc:tek:wpaper:2011/2

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    References listed on IDEAS

    1. Coad, Alex & Rao, Rekha & Tamagni, Federico, 2011. "Growth processes of Italian manufacturing firms," Structural Change and Economic Dynamics, Elsevier, vol. 22(1), pages 54-70, February.
    2. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58.
    3. Coad, Alex, 2007. "Testing the principle of `growth of the fitter': The relationship between profits and firm growth," Structural Change and Economic Dynamics, Elsevier, vol. 18(3), pages 370-386, September.
    4. Davidsson, Per & Steffens, Paul & Fitzsimmons, Jason, 2009. "Growing profitable or growing from profits: Putting the horse in front of the cart?," Journal of Business Venturing, Elsevier, vol. 24(4), pages 388-406, July.
    5. Geroski, Paul A & Machin, Stephen & Walters, Christopher F, 1997. "Corporate Growth and Profitability," Journal of Industrial Economics, Wiley Blackwell, vol. 45(2), pages 171-189, June.
    6. 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.
    7. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
    8. Hambrick, Donald C. & Crozier, Lynn M., 1985. "Stumblers and stars in the management of rapid growth," Journal of Business Venturing, Elsevier, vol. 1(1), pages 31-45.
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    More about this item


    Firm performance; growth; profitability; Turkey;

    JEL classification:

    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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