Firm age and liquidity ratio as predictors of firm growth: evidence from Indian firms

ABSTRACT

The result of the study shows that liquidity ratio and firm age increases the probability of firm becoming high growth or low growth. However, the result indicates that the chances of being high-growth firm are higher for young firms. Quantile results show that the coefficient of liquidity ratio switches from negative in lower quantiles to become positive in upper quantile with the strong positive effect and firm age coefficients are largest in the lower quantiles. These results also confirm the probit result as per which firm age is negatively significant with the growth of the firm. The present study considers an innovative approach that considers balance sheet issued the year prior to the observation of rapid growth as predictors of firm growth (similar to the credit scoring models, i.e. the Z-score model, to measure the probability of default).

KEYWORDS:

• Firm growth
• high-growth firms
• firm age
• liquidity ratio

JEL CLASSIFICATION:

• L11
• L25
• L26

Disclosure statement

No potential conflict of interest was reported by the authors.