DETERMINANTS OF CORPORATE GROWTH: EMPIRICAL INVESTIGATION OF THE SOUTHEAST EUROPEAN COMPANIES

Abstract

The growth of companies is always a current and challenging topic for corporate managers who tend to maximize growth. In order for companies to grow they need to undertake investment projects with a positive NPV that will increase production capacity, output and sales. But, on the other hand, the financing of new assets should be in a way that will not deplete financial resources and will enable sustainable growth. In this paper, we investigate the internal company-specific determinants of corporate growth in Southeast Europe on a sample of 791 companies. We found that SEE companies achieved moderate annual growth of 6.73% per year. This is primarily and mostly due to the small volume of capital investments, which in turn is a result of poor operating performance and low profitability. Retained earnings are the primary internal source of investment financing along with additional borrowing for these companies that have no other financing opportunities available, operating in underdeveloped financial market. The growth of the companies in SEE is positively affected by capital investments, financial leverage, operating cash flow, ROA, ROE, firm’s size, net profit margin and assets turnover. The growth of the companies in SEE is negatively affected by non-debt tax shield, tangibility, account receivable collection period, inventory conversion period and cash conversion cycle. Companies in SEE need to improve working capital management practices, to increase its effectiveness and efficiency, in order to generate greater profitability and consequently greater company growth.