Growth and Profitability in Small and Medium Sized Australian Firms

This study investigated the longitudinal behaviour of growth rates and profitability for a large sample of Australian firms. Similar to previous studies, growth rates were found to be much more volatile than profitability measures. Using a regression equation with lagged profit and growth variables, we found no evidence of a consistent relationship between growth and profitability. The longitudinal behaviour of the growth profitability relationship was also investigated. Consistent with previous research, we found that higher growth firms were on average younger. Similarly, high and low profit firms were found to be younger on average. Our results found that a higher proportion of firms pursuing the profitability pathway were much more likely to achieve high growth and profitability in following years. A much lower proportion of firms pursuing the growth pathway were likely to achieve above average performance in profitability in future years.