An Examination of the Financial Determinants of Growth of the Firm

Document Type : Original Article

Authors

1 Faculty of Business Administration and International Trade, Misr International University

2 Professor of Accounting and Finance Faculty of Management and Technology

Abstract

The corporate finance literature has put significant emphasis on how firms make financing, investment and dividend decisions in order to help the firm to grow. It is quite plausible to assume that firms must make productive investment decisions and provide the efficient financing (internal and external) required for investment. One common interest in the literature of corporate finance is that firms must grow in order to secure existence in the market. Positive growth helps firms compete in the market. Negative growth threatens the existence of the firms.
Considering that a firm is a nexus of relationships (Eisenberg, 1998; Boatright, 2002; Saint, 2005) that are commonly referred to as contractual relationships, the existence of the firm is interrelated with the interests of diverse of stakeholders where growth of the firm offers benefits to all. This argument implies that growth of the firm is also affected by many factors. A convenient classification to these factors considers that growth of the firm might be related to three groups. The first group includes the inner factors that are under the management control. The second group includes the factors that are related to the market where a firm operates. The third group includes the factors that are related to institutional arrangements that a government regulates to either help firms grow or decline. This paper examines the collective nexus of factors that affect growth of the firm.

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