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

Figures & data

Table 5. (A) Rotated factor coefficients, (B) size wise classification, and (C) time wise classification

Panel A Rotated Factor Coefficients

Full Sample (All Firms)

Variable

STSOL

SIZE

LTSOL

AMEFF

CADEFF

CAEFF

WCEFF

TA

.932

NS

.926

ROE

ROC

.716

ROA

.759

GM

CR

.978

QR

.978

DER

-.786

ICT

.785

CTR

.688

FAR

.756

CAT

.682

WCT

.774

DTR

.535

FGT

Panel B Size Wise Classification

The large firm sample produces six factors STSOL: Short Term Solvency; LTSOL: Long Term Solvency; AMEFF: Asset Management Efficiency; CADEFF: Capital Deployment Efficiency; CAEFF: Current Asset Efficiency; WCEFF: Working Capital Efficiency under the rotated Structure.

The small firm sample produces five factors STSOL: Short Term Solvency; LTSOL: Long Term Solvency; AMEFF: Asset Management Efficiency; CADEFF: Capital Deployment Efficiency; CAEFF: Current Asset Efficiency;

Large Firms

Small Firms

Variable

STSOL

LTSOL

AMEFF

CADEFF

CAEFF

WCEFF

Variable

STSOL

LTSOL

AMEFF

CADEFF

CAEFF

ROE

ROE

.803

ROC

.487

.460

ROC

.782

ROA

.570

ROA

.876

GM

GM

CR

.714

CR

.822

QR

.714

QR

.822

DER

–.236

DER

-.804

ICT

.666

ICT

CTR

.761

CTR

.575

FAR

.679

FAR

.889

CAT

.412

CAT

.681

WCT

.964

WCT

DTR

.753

DTR

.636

FGT

FGT

Panel C Time Wise Classification

The Bull phase sample produces 7 factors STSOL: Short Term Solvency; SIZE; LTSOL: Long Term Solvency; AMEFF: Asset Management Efficiency; CADEFF: Capital Deployment Efficiency; CAEFF: Current Asset Efficiency; WCEFF: Working Capital Efficiency under the rotated Structure.

The Bear Phase sample produces five factors STSOL: Short Term Solvency; SIZE, LTSOL: Long Term Solvency; AMEFF: Asset Management Efficiency; CADEFF: Capital Deployment Efficiency;

Bull Phase

Bear Phase

Variable

STSOL

SIZE

LTSOL

AMEFF

CADEFF

CAEFF

WCEFF

Variable

STSOL

SIZE

LTSOL

AMEFF

CADEFF

TA

.929

TA

.932

NS

.909

NS

.931

ROA

.761

ROA

.815

ROC

.728

ROC

.700

ROE

.788

ROE

.816

GM

-.560

GM

CR

.979

CR

.981

QR

.979

QR

.980

DER

–.789

DER

–.814

ICT

ICT

CTR

.712

CTR

.486

FAR

.758

FAR

.860

CAT

.543

CAT

WCT

.938

WCT

DTR

.610

DTR

FGT

FGT

Based on Varimax criterion, the seven components derived in Unrotated Matrix are labeled as STSOL: Short-Term Solvency; Size; LTSOL: Long-Term Solvency; AMEFF: Asset Management Efficiency; CADEFF: Capital Deployment Efficiency; CAEFF: Current Asset Efficiency; WCEFF: Working Capital Efficiency under the rotated Structure. The highest factor loading in Factor STSOL are from variables CR (.978) & QR (.978); TA & NS contributes significantly to SIZE, DER contributes negatively to LTSOL implies higher the DER adverse the LTSOL of the firm, ROA and FAR contributes to AMEFF, ROC & CTR forms the capital deployment efficiency/CADEFF, CAT & DTR groups to form CAEFF, WCT significantly affects WCEFF. All the factors seem relevant as they are backed by variables which correctly reflect the practical significance.

Table 6. (A) Full sample, (B) size wise classification, and (C) time wise classification

Panel A Full Sample
Principal Components		B		S.E.			Wald	df		Sig.		Exp(B)
STSOL		–.052		.018			8.518	1		.004		.949
SIZE		.166		.037			20.351	1		.000		1.180
LTSOL		.139		.028			24.963	1		.000		1.149
AMEFF		.247		.048			26.954	1		.000		1.281
CADEFF		1.425		.081			312.778	1		.000		4.159
CAEFF		.936		.143			42.800	1		.000		2.549
WCEFF		–.094		.049			3.745	1		.053		.910
PANEL B Size –Wise Classification
Large Firms							Small Firms
Principal Components	B	S.E.	Wald	df	Sig.	Exp(B)	Principal Components	B	S.E.	Wald	df	Sig.	Exp(B)
STSOL	–.087	.037	5.550	1	.018	.916	STSOL	–.082	.029	7.875	1	.005	.921
LTSOL	.230	.094	5.951	1	.015	1.259	LTSOL	.113	.060	3.530	1	.060	1.119
AMEFF	.645	.106	37.004	1	.000	1.906	AMEFF	.108	.062	3.041	1	.081	1.114
CADEFF	.608	.073	68.420	1	.000	1.836	CADEFF	.600	.089	45.723	1	.000	1.821
CAEFF	.005	.061	.008	1	.930	1.005	CAEFF	.187	.060	9.622	1	.002	1.206
WCEFF	.102	.039	6.819	1	.009	1.107
Panel C Time–Wise Classification
Bull Period							Bear Period
Principal Components	B	S.E.	Wald	df	Sig.	Exp(B)	Principal Components	B	S.E.	Wald	df	Sig.	Exp(B)
STSOL	–.042	.021	3.968	1	.046	.959	STSOL	–.04	.033	1.484	1	.223	.961
SIZE	.164	.032	25.745	1	.000	1.179	SIZE	.176	.078	5.063	1	.024	1.193
LTSOL	.168	.034	24.450	1	.000	1.182	LTSOL	.320	.125	6.591	1	.010	1.377
AMEFF	.052	.029	3.274	1	.070	1.053	AMEFF	.159	.060	6.961	1	.008	1.173
CADEFF	1.455	.101	208.189	1	.000	4.285	CADEFF	.853	.083	104.673	1	.000	2.346
CAEFF	.268	.077	12.209	1	.000	1.307
WCEFF	–.013	.023	.332	1	.564	.987

Dependent variable: SGR-Sales Growth Rate.

Independent variables: STSOL, SIZE, LTSOL, AMEFF, CADEFF, CAEFF, WCEFF.

Table 7. Robustness test results

Robustness Test Results Panel A Winsorized Full Sample
Principal Components	B	S.E.	Wald	df	Sig.	Exp(B)
STSOL	–.022	.032	6.456	1	.025	.979
SIZE	.086	.103	2.689	1	.040	1.090
LTSOL	–.039	.032	5.428	1	.023	.962
AMEFF	.164	.065	6.342	1	.012	1.178
CADEFF	.258	.029	108.36	1	.000	2.159
CAEFF	.048	.070	13.457	1	.002	1.186
WCEFF	–.109	.049	15.74	1	.033	.924
Panel B Size -Wise Classification
Large Firms							Small Firms
Principal Components	B	S.E.	Wald	df	Sig.	Exp(B)	Principal Components	B	S.E.	Wald	df	Sig.	Exp(B)
STSOL	.180	.293	.378	1	.539	.805	STSOL	-.092	.036	6.491	1	.011	.912
LTSOL	.230	.094	5.951	1	.015	1.259	LTSOL	.005	.052	.008	1	.928	1.505
AMEFF	.557	.237	5.551	1	.018	1.746	AMEFF	1.437	.029	2.391	1	.012	1.207
CADEFF	.284	.181	2.453	1	.017	1.329	CADEFF	.352	.099	12.693	1	.000	1.423
CAEFF	.115	.016	5.268	1	.038	1.875	CAEFF	.161	.052	9.431	1	.002	1.175
WCEFF	.102	.039	3.819	1	.009	1.007

Table

Panel C. Time wise classification
Bull Period							Bear Period
Principal components	B	S.E.	Wald	df	Sig.	Exp(B)	Principal components	B	S.E.	Wald	df	Sig.	Exp(B)
STSOL	.070	.105	.449	1	.503	.871	STSOL	.039	.136	.080	1	.777	1.039
SIZE	−.061	.027	5.084	1	.024	.941	SIZE	−.110	.045	5.970	1	.015	.896
LTSOL	.929	.272	11.682	1	.001	2.533	LTSOL	.267	.118	2.106	1	.084	1.306
AMEFF	.126	.034	13.969	1	.000	1.135	AMEFF	.625	.339	3.407	1	.065	1.868
CADEFF	−.144	.057	6.423	1	.011	.866	CADEFF	.516	.176	8.603	1	.003	1.675
CAEFF	.214	.102	4.420	1	.036	1.238
WCEFF	−.063	.029	4.622	1	.032	.939

Dependent Variable: SGR-Sales Growth Rate.

Independent Variables: STSOL, SIZE, LTSOL, AMEFF, CADEFF, CAEFF, WCEFF.

Table 1. Variables description

Variables	Descriptions
SGR	Sales Growth Rate (Dependent Variable)
TA	Total Assets
NS	Net Sales
ROE	Return on Equity (ROE = PAT/Total Equity
ROC	Return on Capital Employed (ROCE = PAT/Avg. Capital Employed)
ROA	Return on Assets (ROA = PAT/Total Assets
GM	Gross Margin (GM = Gross Profits/Sales)
CR	Current Ratio (CR = Current Assets/Current Liabilities)
QR	Quick Ratio (QR = (Receivables + Cash Balance + Marketable Securities)/Current Liabilities)
DER	Debt to Equity Ratio
ICT	Interest Cover Ratio (PBIT/Interest Expenses)
CTR	Capital Turnover Ratio (CTR = Sales/Capital Employed)
FAR	Fixed Asset ratio (FAR = Sales/Fixed Assets)
CAT	Current Assets Turnover (CAT = Sales/Current Assets)
WCT	Working Capital Turnover (WCT = Sales/Working Capital Employed)
DTR	Debtors Turnover Ratio (DTR = Sales/Avg. Debtors)
FGT	Finished Goods Turnover (FGT = Sales/Finished Goods)

This table display all the 17 variables used in the study with their explanation. The dependent variable (SGR) is classified as 1 and 0. 1 implies that sales have grown compared to previous period and 0 implies sales have fallen compared to previous period.

Table 2. Descriptive statistics

	Full sample		Size wise sample				Time wise sample
	All firms		Large firms		Small firms		Bull phase		Bear phase
Variables	N	μ	N	μ	N	μ	N	μ	N	μ
SGR	17,400	260.533**	6,960	27.911**	6,960	110.296*	13,050	187.568**	4,350	27.642**
TA	17,400	47,605.324**					13,050	13,079.09**	4,350	22,363.019**
NS	17,400	13,633.954**					13,050	42,356.595**	4,350	68,405.743**
ROE	17,400	5.016**	6,960	15.165**	6,960	2.76**	13,050	16.606**	4,350	4.197**
ROC	17,400	5.325**	6,960	9.699**	6,960	−3.141**	13,050	17.602*	4,350	2.542**
ROA	17,400	196.661**	6,960	34.009**	6,960	37.47**	13,050	25.132**	4,350	6.37**
GM	17,400	1,016.7**	6,960	36.196**	6,960	605.644**	13,050	76.507**	4,350	0.584**
CR	17,400	1.916**	6,960	1.801**	6,960	3.396**	13,050	3.046**	4,350	2.4*
QR	17,400	1.366**	6,960	0.901**	6,960	2.128**	13,050	1.904**	4,350	2.119**
DER	17,400	1.771**	6,960	1.941**	6,960	1.389**	13,050	1.339**	4,350	1.57**
ICT	17,400	83.968**	6,960	155.839**	6,960	13.381**	13,050	71.729**	4,350	122.048**
CTR	17,400	1.058**	6,960	1.417**	6,960	1.134**	13,050	4.269**	4,350	1.763**
FAR	17,400	9.862**	6,960	8.469**	6,960	14.229**	13,050	11.054**	4,350	1.155**
CAT	17,400	2.284**	6,960	2.643**	6,960	2.47**	13,050	8.085**	4,350	16.738**
WCT	17,400	5.875**	6,960	2.674**	6,960	5.069**	13,050	2.335**	4,350	2.306**
DTR	17,400	18.013**	6,960	14.531**	6,960	29.823**	13,050	18.588**	4,350	−2.446**
FGT	17,400	242.379**	6,960	625.077**	6,960	81.2**	13,050	416.29**	4,350	225.68**

This table presents the mean statistics of the 17 variables under study classified into three segments namely: full sample, size wise classification and time wise classification. Under size wise classification the mean values of TA & NS are absent as we intended to study the effect of rest of the variable on SGR when the full sample is classified on size basis. More than 90% of the variable’s mean are statistically significant which implies absence of outliers and missing data because the t-stat depends upon sample mean and sample variance which are both sensitive to outliers. In order to strive for model parsimony, we have checked for the specification error (i.e. inclusion of critical predictor variable and deletion of irrelevant variables). The practical significance of the variables is validated as most of the variable’s mean are in acceptable range (for instance FGT in full sample is 242 times which is more clear in size wise classification with a FGT of 625 times for large firm and 81 times for the smaller firms, when the sample is classified on bull and bear phase wise again FGT reflects that FGT increases to 415 times in bull and 225 times in bear time periods).

* Significance at 10% level.

** Significance at 5% level.

Table 3. Correlations matrix for the full sample (2003–2014)

Variables	SGR	TA	NS	ROE	ROC	ROA	GM	CR	QR	DER	ICT	CTR	FAR	CAT	WCT	DTR	FGT	Correlation significant at 1/5%
SGR	1
TA	.001	1																0
NS	.003	.799**	1															1
ROE	.026**	.013**	.016**	1														3
ROC	.033**	.019*	.021*	.437**	1													4
ROA	.056**	.015	.013	.362**	.466**	1												3
GM	.000	−.001	−.003	.003	.009	.006	1											0
CR	−.002	−.019*	−.015	−.009	−.006	.026**	.002	1										2
QR	.000	−.015	−.016	−.007	.001	.048**	.005	.896**	1									2
DER	−.001	−.006	−.004	−.130**	−.044**	−.040**	−.001	−.011	−.014	1								3
ICT	.000	.110**	.031**	.046**	.083**	.114**	.000	.000	.006	−.008	1							5
CTR	.001	−.001	.016**	.028**	.063**	.018**	−.003	−.007	−.009	−.001	.002	1						4
FAR	.001	.008	.071**	.023*	.020*	.242**	−.006	−.001	.007	−.005	.005	.057**	1					5
CAT	.007	.022*	.078**	.069**	.075**	.001	−.019*	−.085**	−.088**	.003	.002	.047**	.088**	1				9
WCT	.000	−.001	.001	.000	−.001	.001	.000	.000	.000	.000	−.001	.000	.001	.001	1			0
DTR	.000	.000	.005	.028**	.041**	−.002	−.002	−.009	−.112**	−.002	.001	.011	−.001	.135**	.001	1		4
FGT	.000	.117**	.009	.113**	.006	.006	−.001	−.004	−.002	−.002	−.002	.001	−.001	−.004	−.001	−.002	1	2

This table shows that 47 out of 136 (i.e. 35%) of the correlations are highly significant signaling the presence of collinearity amongst the explanatory variables. This may result in large variances and co variances also high standard error of the regression coefficients making precise estimation difficult. It may also widen confidence intervals making true population coefficient as zero. Thus a reduced number of factors will be appropriate for further analysis hence Principal Component Analysis (PCA) is used as a data reduction technique in the current study.

*Correlation is significant at the .05 level.

**Correlation is significant at the .01 level.

Figure 1. Scree plots.

Table 4. Unrotated principal components: eigenvalues and % of variance

Principal component	Com-1	Com-2	Com-3	Com-4	Com-5	Com-6	Com-7
Full sample	All Firms
Eigenvalue	1.929	1.749	1.245	1.175	1.055	1.005	1.001
% of total variance	12.861	11.661	8.301	7.835	7.032	6.703	6.675
Cum. Eigenvalues	1.929	3.678	4.924	6.099	7.153	8.159	9.160
Cum % of variance	12.861	24.522	32.823	40.658	47.690	54.393	61.068
SIZE WISE FIRMS
	Large Firms
Eigenvalue	1.507	1.458	1.104	1.028	1.006	1.003
% of total variance	10.762	10.415	7.888	7.345	7.182	7.164
Cum. Eigenvalues	1.507	2.965	4.069	5.097	6.103	7.106
Cum % of variance	10.762	21.177	29.065	36.410	43.592	50.756
Small Firms
Eigenvalue	1.685	1.382	1.297	1.178	1.037
% of total variance	12.037	9.875	9.265	8.413	7.410
Cum. Eigenvalues	1.685	3.068	4.365	5.543	6.580
Cum % of variance	12.037	21.912	31.177	39.590	47.000
TIME WISE FIRMS
	Bull Phase
Eigenvalue	1.918	1.767	1.250	1.160	1.065	1.016	1.001
% of total variance	12.787	11.782	8.332	7.730	7.099	6.772	6.674
Cum. Eigenvalues	1.918	3.685	4.935	6.095	7.160	8.175	9.177
Cum % of variance	12.787	24.569	32.901	40.632	47.731	54.503	61.177
	Bear Phase
Eigenvalue	1.979	1.745	1.637	1.346	1.154	–	–
% of total variance	15.195	13.636	12.916	10.977	9.693	–	–
Cum. Eigenvalues	1.979	3.725	5.362	6.709	7.863	–	–
Cum % of variance	15.195	28.831	41.747	52.724	62.417	–	–

Observing high correlation amongst the explanatory variables presented in Table 2, the necessity of conducting component analysis becomes inevitable. It leads us to extract the factor with common characteristics in the sample data (i.e. variables with high correlations are grouped in a factor, commonly known as components as presented in the table as Com-1, 2, 3, etc.). In this study, the criterion used to group variables into a factor are: latent root criterion (in which factors with eigenvalues more than 1 will be retained); percentage of variance criterion (in which factors will be retained till they explain a requisite amount of variance, based on past literature cumulative % of variance ranging in between 55% and 65% and more is accepted) and scree test criterion (in which factors are retained till the point the latent roots decline and flatten). As presented in the table, the full sample retains 7 components satisfying all the criterions. Scree plot is given in Figure 1. Large and Small firms under size wise classification consider 6 and 5 components, respectively. Bull and Bear Phase under Time wise classification considers 7 and 5 components, respectively. Scree plots for each are given in Figure 1.

Table

Panel B
Large Firms^a							Small Firms^b
Variable	STSOL	LTSOL	AMEFF	CADEFF	CAEFF	WCEFF	Variable	STSOL	LTSOL	AMEFF	CADEFF	CAEFF
ROE							ROE		.803
ROC		.487		.460			ROC				.782
ROA			.570				ROA			.876
GM							GM
CR	.714						CR	.822
QR	.714						QR	.822
DER		−.236					DER		−.804
ICT		.666					ICT
CTR				.761			CTR				.575
FAR			.679				FAR			.889
CAT					.412		CAT					.681
WCT						.964	WCT
DTR					.753		DTR					.636
FGT							FGT

^a The large firm sample produces six factors STSOL: Short-Term Solvency; LTSOL: Long-Term Solvency; AMEFF: Asset Management Efficiency; CADEFF: Capital Deployment Efficiency; CAEFF: Current Asset Efficiency; WCEFF: Working Capital Efficiency under the rotated Structure.

^b The small firm sample produces five factors STSOL: Short-Term Solvency; LTSOL: Long-Term Solvency; AMEFF: Asset Management Efficiency; CADEFF: Capital Deployment Efficiency; CAEFF: Current Asset Efficiency.

Table

Panel C
Bull Phase^c								Bear Phase^d
Variable	STSOL	SIZE	LTSOL	AMEFF	CADEFF	CAEFF	WCEFF	Variable	STSOL	SIZE	LTSOL	AMEFF	CADEFF
TA		.929						TA		.932
NS		.909						NS		.931
ROA				.761				ROA				.815
ROC					.728			ROC					.700
ROE			.788					ROE			.816
GM						−.560		GM
CR	.979							CR	.981
QR	.979							QR	.980
DER			−.789					DER			−.814
ICT								ICT
CTR					.712			CTR					.486
FAR				.758				FAR				.860
CAT						.543		CAT
WCT							.938	WCT
DTR						.610		DTR
FGT								FGT

^c The Bull phase sample produces 7 factors STSOL: Short-Term Solvency; SIZE; LTSOL: Long-Term Solvency; AMEFF: Asset Management Efficiency; CADEFF: Capital Deployment Efficiency; CAEFF: Current Asset Efficiency; WCEFF: Working Capital Efficiency under the rotated Structure.

^d The Bear Phase sample produces five factors STSOL: Short-Term Solvency; SIZE, LTSOL: Long-Term Solvency; AMEFF: Asset Management Efficiency; CADEFF: Capital Deployment Efficiency.

Table

Panel B
Large Firms							Small Firms
Principal Components	B	S.E.	Wald	df	Sig.	Exp(B)	Principal Components	B	S.E.	Wald	df	Sig.	Exp(B)
STSOL	−.087	.037	5.550	1	.018	.916	STSOL	−.082	.029	7.875	1	.005	.921
LTSOL	.230	.094	5.951	1	.015	1.259	LTSOL	.113	.060	3.530	1	.060	1.119
AMEFF	.645	.106	37.004	1	.000	1.906	AMEFF	.108	.062	3.041	1	.081	1.114
CADEFF	.608	.073	68.420	1	.000	1.836	CADEFF	.600	.089	45.723	1	.000	1.821
CAEFF	.005	.061	.008	1	.930	1.005	CAEFF	.187	.060	9.622	1	.002	1.206
WCEFF	.102	.039	6.819	1	.009	1.107

Table

Panel C
Bull Period								Bear Period
Principal components	B	S.E.	Wald	df	Sig.	Exp(B)	Principal components		B	S.E.	Wald	df	Sig.	Exp(B)
STSOL	−.042	.021	3.968	1	.046	.959	STSOL		−.04	.033	1.484	1	.223	.961
SIZE	.164	.032	25.745	1	.000	1.179	SIZE		.176	.078	5.063	1	.024	1.193
LTSOL	.168	.034	24.450	1	.000	1.182	LTSOL		.320	.125	6.591	1	.010	1.377
AMEFF	.052	.029	3.274	1	.070	1.053	AMEFF		.159	.060	6.961	1	.008	1.173
CADEFF	1.455	.101	208.189	1	.000	4.285	CADEFF		.853	.083	104.673	1	.000	2.346
CAEFF	.268	.077	12.209	1	.000	1.307
WCEFF	−.013	.023	.332	1	.564	.987

Table

Panel B. Size classification
Large Firms							Small Firms
Principal components	B	S.E.	Wald	df	Sig.	Exp(B)	Principal components	B	S.E.	Wald	df	Sig.	Exp(B)
STSOL	.180	.293	.378	1	.539	.805	STSOL	−.092	.036	6.491	1	.011	.912
LTSOL	.230	.094	5.951	1	.015	1.259	LTSOL	.005	.052	.008	1	.928	1.505
AMEFF	.557	.237	5.551	1	.018	1.746	AMEFF	1.437	.029	2.391	1	.012	1.207
CADEFF	.284	.181	2.453	1	.017	1.329	CADEFF	.352	.099	12.693	1	.000	1.423
CAEFF	.115	.016	5.268	1	.038	1.875	CAEFF	.161	.052	9.431	1	.002	1.175
WCEFF	.102	.039	3.819	1	.009	1.007

Table

Panel C. Time wise classification
Bull Period							Bear Period
Principal components	B	S.E.	Wald	df	Sig.	Exp(B)	Principal components	B	S.E.	Wald	df	Sig.	Exp(B)
STSOL	.070	.105	.449	1	.503	.871	STSOL	.039	.136	.080	1	.777	1.039
SIZE	−.061	.027	5.084	1	.024	.941	SIZE	−.110	.045	5.970	1	.015	.896
LTSOL	.929	.272	11.682	1	.001	2.533	LTSOL	.267	.118	2.106	1	.084	1.306
AMEFF	.126	.034	13.969	1	.000	1.135	AMEFF	.625	.339	3.407	1	.065	1.868
CADEFF	−.144	.057	6.423	1	.011	.866	CADEFF	.516	.176	8.603	1	.003	1.675
CAEFF	.214	.102	4.420	1	.036	1.238
WCEFF	−.063	.029	4.622	1	.032	.939