What is it about?
Purpose – The purpose of this paper is to arrive at high-growth firm (HGF) and predict the growth of rapid-growth firms using the set of balance-sheet ratios. Design/methodology/approach – The source of data came from the AIDA database, a commercial database provided by Bureau van Dijk. A total of 45,000 family business small- and medium-scale enterprises of Italy were selected for the study. Liquidity ratio, solvency ratio, firm age, cash flow, and working capital are considered as predictors of the firm growth. Probit regression is used for predicting the growth of the firms. Findings – The result of the study indicated that the most important financial indicators were the liquidity ratio, solvency ratio, firm age, cash flow, and working capital are most important predictors of firm growth. The ROC of the model is 70.78, which shows that the model is fair.
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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 have some clear policy implications. First and foremost, it is difficult to work out policies directly targeting sustained growth champions. Growth tends to be erratic, sporadic, and short term. As a consequence, HGFs are difficult to predict and their growth performance changes quickly over time. A “picking the winner” strategy seems unjustified in this regard. The results can be considered as an initial set of insights for managers and practitioners in order to develop a proven set of best practices supporting executives in their decision-making processes with respect to firm growth modes and thus, their growth strategies.
Amith Vikram Megaravalli
Universita degli Studi di Napoli Federico II
Read the Original
This page is a summary of: Predicting the growth of high-growth SMEs: evidence from family business firms, Journal of Family Business Management, February 2018, Emerald,
DOI: 10.1108/jfbm-09-2017-0029.
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