Sustainable growth of non-financial firms : evidence from emerging economies

Abstract

Higgins’ (1977, 1981, 2008) model of Sustainable growth has been widely used in corporate finance application. This research investigates whether Higgins’ model of sustainable growth is underestimated as suggested by the theoretical paper of Chen (2013). For this purpose, data of seven emerging economies between the years 2000 and 2015 have been used. Firms issuing secondary equity were identified from the data set. An independent t-test was used to test the difference of mean of growth for firms issuing secondary equity and firms not issuing secondary equity. Additionally, a panel regression model with random effect model is employed to identify the factors causing difference in sustainable growth and actual realized growth. The results show that Higgins model of sustainable growth is underestimated. While identifying the possible factor of underestimation, secondary equity issue is a significant factor in five emerging economies (Pakistan, India, Korea, Indonesia and Brazil) and insignificant in two emerging economies (China and Turkey). Moreover, while exploring firm-specific factors as a reason of underestimation of SGR model, we found that in the case of nonfinancial firms, leverage and size are playing important roles whereas profitability and dividend policy yield mixed results.