Sustainable Growth Rate Analysis in Eastern European Companies

Abstract

As a prerequisite for long-term strategic and financial planning, sustainable growth is a future-oriented concept that was based on the company’s long-term survival with value creation. The primary aim of this paper is to determine the indicators that have an influence on sustainable company growth rate during the five-year period of 2016 to 2020. Panel regression analysis was used in order to thoroughly analyze the sustainable growth variables. Our analysis was based on a sample of 675 observations of companies operating in the Eastern European market. The obtained results showed that liquidity and leverage have a negative impact on sustainable growth, while profitability has a positive impact on sustainable growth. The impact of these variables was statistically significant. The obtained results may serve as an effective company tool to improve the target sustainable growth rate. They provide support for the company’s management to improve its business and ensure healthy growth without major financial difficulties, as well as to promote a sustainable business that will increase the market value of the company. Moreover, all internal and external stakeholders will be provided with insight into the reality of growth plans and opportunities for future sustainable growth, which creates a basis for measuring a company’s business prosperity and predicting its long-term performance.

The Influence of Firm Characteristics and Capital Structure on Sustainable Growth Rate

“…Likewise, research from Arora et al (2018) shows that the four main ratios, namely return on equity and net profit margin, affect the sustainable growth rate. Vuković et al (2022) research that profitability positively affects sustainable growth. The research findings of Mukherjee & Sen (2018) reveal a significant positive relationship between profitability and the company's sustainable growth rate.…”

“…Pecking order theory can also explain the relationship between return on assets (ROA) and sustainable growth rate (SGR), with a higher return on assets allowing businesses to achieve higher sustainable growth rates without relying on outside funding. (Vuković et al, 2022).…”

“…Research from Arora et al (2018) shows that four main ratios, namely return on equity, net profit margin, asset turnover, and financial leverage, affect the sustainable growth rate. Likewise, Vuković, Tica, and Jakšić (2022) research examines the indicators that influence the sustainable growth rate. The results of his research show that profitability has a positive effect on sustainable growth.…”

“…The research findings of Mukherjee ( 2018) reveal a significant positive relationship between liquidity, profitability and capital structure with the company's sustainable growth rate. However, (Vuković et al, 2022) show that liquidity and capital structure have a negative effect on sustainable growth. H3: Capital structure has a positive effect on the sustainable growth rate…”

“…In addition, firm performance and sustainable growth are positively related to physical, human, and relational capital. Meanwhile, research from Vuković et al (2022) found that liquidity and leverage negatively affect sustainable growth rates, while profitability positively affects sustainable growth. Finally, the sustainable growth rate variable was used as a mediating variable from the research of Ramli et al (2022).…”