Sustainable Growth Rate and Firm Performance: A Case Study in Malaysia

Abstract

Purpose: Growth for business is significant especially for company’s goal because the company can maintain their performance without running into financial problems. Financial problems or financial distress can make the company not enough capital or financial resources to run company activities. This research investigate the association between firm performance and sustainable growth rate.Methodology:The indicators for sustainable growth rate are calculated by using Higgins model and the measurements for firm performance such as financial leverage (debt ratio and equity ratio), liquidity (current ratio), and assets efficiency (total asset turnover). The data of the research consists of 226 companies from all sectors except for a financial sector of FBMKLCI Bursa Malaysia over 11 years’ period from 2005 until 2015. This analysis used descriptive method and multiple regression analysis.Findings:The results found that there is a significant relationship between debt ratio, equity ratio, total asset turnover and size of the firm with sustainable growth rate.Practical Implications:The sustainable growth rate is one of the valuable financial tools especially for managers used to gauging financial and operating decision, whether to sustain, increase or decrease.Social Implications: The results of this study also enable the company to manage its financial and operating policy towards healthy growth without having additional financial problem.Research Limitations/Implications:This study focuses on all sectors except for financial sector of Bursa Malaysia to identify an implication to the role of debt and financing decisions for sustainable firm’s growth over 11 years period from 2005 until 2015.Originality/Value: Our results are suitable for companies to manage their solid performance to sustain firm’s growth in the future undertakings.

Working capital management and its influence on profitability and sustainable growth

“…Increased firms' ability to generate profits will enhance their sustainable growth. Our results are in line with previous studies that demonstrate that profitability affects firms' sustainable growth (Amouzesh et al 2011, Fonseka et al 2012, Manaf et al 2018, Rahim 2017. These findings suggest that increased profitability will provide more internal funds for firms to support sustainable growth.…”

Sustainable Growth in SMEs: A Review from the Malaysian Perspective

“…Knowledge on continuous growth or growth over longer period of time is limited (Achtenhagen, Naldi, & Melin, 2010). Research on sustainable growth has been focused on large companies listed in Iran Financial Market (Amouzesh et al, 2011), Asean Bourses (Rahim & Saad, 2014), London Stock Exchange (Gomez-Bezares et al, 2014), Chinese GEM (Huang & Zhang, 2015), Bucharest Stock Market (Stancu et al, 2015) and Bursa Saham, Malaysia (Rahim, 2017). While many factors have been studied from different perspectives to predict the growth of the firm, it still remains unclear to explain and predict the sustainability growth of SMEs.…”

Is working capital management able to increase sustainable growth through asset utilization?

“…Firms will achieve both conditions if they manage their working capital efficiently. Rahim (2017) and Manaf et al,. (2018) demonstrate that asset utilization affects firms' ability to grow optimally based on their internal financing or commonly known as sustainable growth.…”

“…Working capital management will affect firms' asset utilization (Rahim, 2017). Assets utilization is the use of firms assets to produce products or services offered to consumers (Rahayu, 2019).…”

“…Working capital management not only affects firms' performance but also their asset utilization or commonly known as total asset turnover. Asset turnover informs us whether firms have utilized their assets efficiently (Rahim, 2017;Alarussi & Alhaderi, 2018;Zorn, Esteves ,Baur, & Lips, 2018). A greater asset turnover indicates that firms manage to generate higher sales with the same level of assets or to generate the same sales with fewer assets.…”