SUSTAINABLE GROWTH RATE AND FIRM PERFORMANCE: A CASE STUDY IN MALAYSIA
Purpose: Growth for business is significant especially for company’s goal because the company can maintain their performance without running into financial problems. Financial problems or financial distress can make the company not enough capital or financial resources to run company activities. This research investigate the association between firm performance and sustainable growth rate.
Methodology:The indicators for sustainable growth rate are calculated by using Higgins model and the measurements for firm performance such as financial leverage (debt ratio and equity ratio), liquidity (current ratio), and assets efficiency (total asset turnover). The data of the research consists of 226 companies from all sectors except for a financial sector of FBMKLCI Bursa Malaysia over 11 years’ period from 2005 until 2015. This analysis used descriptive method and multiple regression analysis.
Findings:The results found that there is a significant relationship between debt ratio, equity ratio, total asset turnover and size of the firm with sustainable growth rate.
Practical Implications:The sustainable growth rate is one of the valuable financial tools especially for managers used to gauging financial and operating decision, whether to sustain, increase or decrease.
Social Implications: The results of this study also enable the company to manage its financial and operating policy towards healthy growth without having additional financial problem.
Research Limitations/Implications:This study focuses on all sectors except for financial sector of Bursa Malaysia to identify an implication to the role of debt and financing decisions for sustainable firm’s growth over 11 years period from 2005 until 2015.
Originality/Value: Our results are suitable for companies to manage their solid performance to sustain firm’s growth in the future undertakings.
2. Anderson, R. W., & Nyborg, K. G. (2011),"Financing and corporate growth under repeated moral hazard",Journal of Financial Intermediation, 20(1), 1–24. http://doi.org/10.1016/j.jfi.2009.12.001
3. Bivona, E. (2000),"How To Define A Profitable And Sustainable Growth Policy In A Changing Market: A Case Study: A Small Publishing Company",Proceedings of the 18th International Conference of the System Dynamics Society.
4. Chen, H., Gupta, M., Lee, A., & Lee, C. (2013),"Sustainable growth rate, optimal growth rate, and optimal payout ratio: A joint optimization approach"Journal of Banking Finance. http://doi.org/10.1016/j.jbankfin.2012.11.019
5. Chung, Y. P., Na, H. S., & Smith, R. (2013),"How important is capital structure policy to firm survival?",Journal of Corporate Finance, 22(1), 83–103. http://doi.org/10.1016/j.jcorpfin.2013.04.002
6. Emery, D. G. W. . (2000),"Sustainable Growth for Credit Analysis", EBSCOhost. Business Credit , 102(2), 35–39. Retrieved from http://web.a.ebscohost.com.ezaccess.library.uitm.edu.my/ehost/detail/detail?sid=150ab3c9-95a6-4fe4-be06-18fa27553885%40sessionmgr4009&vid=0&hid=4201&bdata=JnNpdGU9ZWhvc3QtbGl2ZSZzY29wZT1zaXRl#AN=2805889&db=bth
7. Fonseka, M. M., Ramos, C. G., & Tian, G. L. (2012),"The most appropriate sustainable growth rate model for managers and researchers",Journal of Applied Business Research, 28(3), 481–500.
8. Guariglia, A., Liu, X., & Song, L. (2011),"Internal finance and growth: Microeconometric evidence on Chinese firms",Journal of Development Economics, 96(1), 79–94. http://doi.org/10.1016/j.jdeveco.2010.07.003
9. Gujarati, D. N. (2004),"Basic Econometrics",New York. http://doi.org/10.1126/science.1186874
10. Higgins, R. (1977),"How much growth can a firm afford?",Financial Management, 6(3), 7–16. http://doi.org/10.2307/3665251
11. Ilie, L., & Olaru, R. (2013),"Leveraging and Deleveraging: Pluses and Minuses",Procedia Economics and Finance, 6(13), 634–644. http://doi.org/10.1016/S2212-5671(13)00183-4
12. Johnson, R., & Soenen, L. (2003),"Indicators of Successful Companies",European Management Journal, 21(3), 364–369. http://doi.org/10.1016/S0263-2373(03)00050-1
13. Kanani, M. A., Moradi, J., & Valipour, H. (2013), "Sustainable Growth and Firm Risk from the Signaling Perspective",Asian Economic and Financial Review, 3(5), 660–667. Retrieved from http://search.proquest.com.library.capella.edu/docview/1417584722/abstract?accountid=27965
14. Korteweg, A. (2010),"The net benefits to leverage",Journal of Finance, 65(6), 2137–2170. http://doi.org/10.1111/j.1540-6261.2010.01612.x
15. Lang, L., Ofek, E., & Stulz, R. M. (1996),"Leverage, investment, and firm growth",Journal of Financial Economics, 40(1), 3–29. http://doi.org/10.1016/0304-405X(95)00842-3
16. Obstfeld, M. (2012), "Financial flows, financial crises, and global imbalances", Journal of International Money and Finance, 31(3), 469–480. http://doi.org/10.1016/j.jimonfin.2011.10.003
17. Platt, H. D., Platt, M. B., & Chen, G. (1995),"Sustainable growth rate of firms in financial distress",Journal of Economics and Finance, 19(2), 147–151. http://doi.org/10.1007/BF02920515
18. Rădăşanu, A. C. (2015),"Cash-Flow Sustainable Growth Rate Models",Journal of Public Administration. Retrieved from http://www.jopafl.com/uploads/issue7/Cashflow_Sustainable_Growth_Rate_Models.pdf
19. Rajan, R. G., & Zingales, L. (1998),"Financial Dependence and Growth",American Economic Review, 88(3), 559–586. http://doi.org/10.1017/CBO9781107415324.004
20. Ross, S. S. A. (1977),"The determination of financial structure: the incentive-signalling approach",The Bell Journal of Economics, 8(1), 23–40. http://doi.org/10.2307/3003485
21. Sánchez-Vidal, F. J. (2014), "High debt companies’ leverage determinants in Spain: A quantile regression approach"Economic Modelling, 36, 455–465.http://doi.org/10.1016/j.econmod.2013.08.043
22. Srinivasa, B. G. (2011),"A Study on measuring the performance of Indian banking sector in the event of recent global economic crisis- an empirical view",International Journal of Research in Commerce, Economics and Management, 1(1041).
23. Wu, X., & Chau Kin Au Yeung. (2012),"Firm growth type and capital structure persistence",Journal of Banking and Finance, 36(12), 3427–3443. http://doi.org/10.1016/j.jbankfin.2012.08.008
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Authors retain ownership of the copyright for their content. Licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 Unported License.