Firms’ growth opportunities and profitability: a nonlinear relationship

Abstract

Using different panel estimators, this article shows that the relationship between growth opportunities and profitability is nonlinear in a sample of firms in the Portuguese Stock Market. These results highlight that firms with low and high growth opportunities tend to show high profitability and firms in the middle of the growth opportunities distribution have small profitability. These suggest that the agency problems between managers and owners are particularly relevant in firms with middle growth opportunities, as managers seem to act in order to simultaneously grow and decrease profitability.