Sustainable Growth of Nonfinancial Firms: An Empirical Examination of Emerging Economies

The classic model of sustainable growth presented by Higgins is extensively used in accounting and finance research. This research empirically examines this model which was suggested to be underestimated in the existing literature. The investigation was performed using data from 2000 to 2015 for seven emerging countries. To find out the mean difference in growth between secondary equity issuing firms and non-issuing firms, we used an independent sample t-test. To identify the factors affecting differences in sustainable growth and realized growth,  regression analysis was performed and a panel of seven countries for sixteen years data was used to estimate the panel regression. The study found the Higgins’ model to be underestimated. One of the main factors of underestimation of the model was found to be the secondary equity issue. This factor was observed to be significant in the case of five countries i.e. Pakistan, India, Korea, Indonesia and Brazil while the same was found insignificant in Turkey and China. Also during the examination, firm-specific factors that are important for the underestimation of the SGR (Sustainable Growth Rate) model were detected which include leverage and size, whereas dividend policy and profitability gave mixed results. Our study suggests that firms with secondary equity issues are more likely to have sustainable growth than firms not having secondary equity issues.