Predictors of firm growth in India: An exploratory analysis using accounting information

• Published in: Cogent economics & finance Vol. 6; no. 1; pp. 1 - 26
• Main Authors: Mishra, Sibanjan, Deb, Soumya Guha
• Format: Journal Article
• Language: English
• Published: Abingdon Taylor & Francis 01.01.2018; Cogent; Taylor & Francis Ltd; Taylor & Francis Group
• Subjects: Assets; Business growth; Capital; Companies; Decision making; Deployment; Efficiency; financial information; firm performance; logistic regression; M100; M400; Principal components analysis; Regression analysis; Revenue; revenue growth; Small business; Solvency; India
• ISSN: 2332-2039; 2332-2039
• DOI: 10.1080/23322039.2018.1553571

This paper aims at identifying relevant financial factors which critically affects firm revenue growth. We specifically focus on the dynamic nature of such factors across up or down-market cycles and also for different scales and size of business. The study uses annual data of 17 accounting and financial variables for a sample of 1,450 Indian firms which exist continuously between 2003 and 2014 and generate a framework for identification of critical factors which affect firm revenue growth. We employ a variable reduction technique via principal component analysis (PCA), and then use the "principal factors" identified thereon, in a logistic regression approach to develop such a framework. The study finds efficiency in management of current assets and capital (both short- and long-term) to be the most critical factors, determining the firm revenue growth in Indian context. The relative importance of capital deployment efficiency is more for small firms than for large firms whereas asset management efficiency is the most critical factor in larger firms. Long-term solvency supersedes all other factors during market downturns. These findings may have important implications for firms and its stakeholders as a priori knowledge on the importance of critical factors regarding firm's revenue growth could enable the mangers to support them in their decision-making process.