What is it about?
The result of the study shows that liquidity ratio and firm age increases the probability of firm becoming high growth or low growth. However, the result indicates that the chances of being high-growth firm are higher for young firms. Quantile results show that the coefficient of liquidity ratio switches from negative in lower quantiles to become positive in upper quantile with the strong positive effect and firm age coefficients are largest in the lower quantiles. These results also confirm the probit result as per which firm age is negatively significant with the growth of the firm.
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Why is it important?
The present study considers an innovative approach that considers balance sheet issued the year prior to the observation of rapid growth as predictors of firm growth (similar to the credit scoring models, i.e. the Z-score model, to measure the probability of default).
Perspectives
The results of the study have some important policy implications. The findings of the study confirm the past works of literature which argue that younger firms grow faster. Hence, better policy measures from the government to support the start-ups will boost the economy. The study makes many contributions which can be useful both for policymakers and venture capital firms.
Amith Vikram Megaravalli
Universita degli Studi di Napoli Federico II
Read the Original
This page is a summary of: Firm age and liquidity ratio as predictors of firm growth: evidence from Indian firms, Applied Economics Letters, December 2017, Taylor & Francis,
DOI: 10.1080/13504851.2017.1420883.
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