Martin Weiss , Dominic Herrmann , Theodore A. Khoury , Markus Kreutzer , Marc Hummel
{"title":"The boundary conditions for growth: Exploring the non-linear relationship between organic and acquisitive growth and profitability","authors":"Martin Weiss , Dominic Herrmann , Theodore A. Khoury , Markus Kreutzer , Marc Hummel","doi":"10.1016/j.lrp.2022.102291","DOIUrl":null,"url":null,"abstract":"<div><p>The nature of the relationship between growth and profitability remains inconclusive, despite prior research. To contribute to a better understanding of the growth-profitability relationship, we examine its non-linear character. We achieve this by deconstructing growth into organic and acquisitive modes, and by theorizing how the particular costs and benefits of each mode affect the profitability, which we measure as return on assets. Furthermore, we propose that the interaction of these two modes can also affect profitability. By studying these relationships with a panel data set of established German firms during a 13-year period, we uncover an inverted U-shaped relationship between growth and profitability that is mainly driven by acquisitive growth. These decreasing returns at higher levels of acquisitive growth are related to the higher internal costs of managing acquisitions. Consistent with our logic, we find that organic growth has a declining positive profitability effect. The interaction of both growth modes also shows that increasing acquisitive growth negatively impacts the positive effect of organic growth on profitability.</p></div>","PeriodicalId":18141,"journal":{"name":"Long Range Planning","volume":null,"pages":null},"PeriodicalIF":7.4000,"publicationDate":"2023-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Long Range Planning","FirstCategoryId":"91","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0024630122001108","RegionNum":2,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS","Score":null,"Total":0}
引用次数: 0
Abstract
The nature of the relationship between growth and profitability remains inconclusive, despite prior research. To contribute to a better understanding of the growth-profitability relationship, we examine its non-linear character. We achieve this by deconstructing growth into organic and acquisitive modes, and by theorizing how the particular costs and benefits of each mode affect the profitability, which we measure as return on assets. Furthermore, we propose that the interaction of these two modes can also affect profitability. By studying these relationships with a panel data set of established German firms during a 13-year period, we uncover an inverted U-shaped relationship between growth and profitability that is mainly driven by acquisitive growth. These decreasing returns at higher levels of acquisitive growth are related to the higher internal costs of managing acquisitions. Consistent with our logic, we find that organic growth has a declining positive profitability effect. The interaction of both growth modes also shows that increasing acquisitive growth negatively impacts the positive effect of organic growth on profitability.
期刊介绍:
Long Range Planning (LRP) is an internationally renowned journal specializing in the field of strategic management. Since its establishment in 1968, the journal has consistently published original research, garnering a strong reputation among academics. LRP actively encourages the submission of articles that involve empirical research and theoretical perspectives, including studies that provide critical assessments and analysis of the current state of knowledge in crucial strategic areas. The primary user base of LRP primarily comprises individuals from academic backgrounds, with the journal playing a dual role within this community. Firstly, it serves as a platform for the dissemination of research findings among academic researchers. Secondly, it serves as a channel for the transmission of ideas that can be effectively utilized in educational settings. The articles published in LRP cater to a diverse audience, including practicing managers and students in professional programs. While some articles may focus on practical applications, others may primarily target academic researchers. LRP adopts an inclusive approach to empirical research, accepting studies that draw on various methodologies such as primary survey data, archival data, case studies, and recognized approaches to data collection.