Growing Profitable or Growing from Profits: Putting the Horse in Front of the Cart?

A NEW VISION IN THE 2ST CENTURY, PROCEEDINGS OF THE ANNUAL ACADEMY OF MANAGEMENT MEETINGS, K. Weaver, ed., pp. 1-34, Honolulu, Hawaii, 2005

41 Pages Posted: 23 Sep 2008

See all articles by Per Davidsson

Per Davidsson

Queensland University of Technology - Brisbane Graduate School of Business

Paul Steffens

Queensland University of Technology - School of Management

Jason Fitzsimmons

Queensland University of Technology

Date Written: 2005

Abstract

Firm 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.

Keywords: Firm growth, Firm performance, Firm development, SMEs

Suggested Citation

Davidsson, Per and Steffens, Paul and Fitzsimmons, Jason, Growing Profitable or Growing from Profits: Putting the Horse in Front of the Cart? (2005). A NEW VISION IN THE 2ST CENTURY, PROCEEDINGS OF THE ANNUAL ACADEMY OF MANAGEMENT MEETINGS, K. Weaver, ed., pp. 1-34, Honolulu, Hawaii, 2005. Available at SSRN: https://ssrn.com/abstract=1263088 or http://dx.doi.org/10.2139/ssrn.1263088

Per Davidsson (Contact Author)

Queensland University of Technology - Brisbane Graduate School of Business ( email )

Brisbane
Australia
+61 7 3864 2051 (Phone)
+61 7 3864 1299 (Fax)

HOME PAGE: http://www.qut.edu.au/ph_server_query.do

Paul Steffens

Queensland University of Technology - School of Management ( email )

Brisbane, Queensland 4001
Australia

Jason Fitzsimmons

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

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