Determinants of Firm Growth in the Industrial Sector of Pakistan

Abstract

Why do some companies endure and grow, and others do not? Is Gibrat's Law still valid? This is a continuing discussion in industrial organization and management since Gibrat published in 1931. Gibrat ( 1931) recommended organization growth is not dependent on firm size and is by chance. We considered factors of firm growth. Specifically, we observed whether organization growth is explained by firm size, firm profitability, firm agency costs, and firm R&D intensity, firm dividend payout and firm FCF. Our study consists of non-financial area of I isted business of Pakistan Stock Exchange therefore our research consists of I I sectors comprising of283 randomly selected companies. The sampling of the data is omprised of I 0 years i.e. 20 I 0 till 2019. Empirical analysis involved panel fixed regression analysis, correlation, descriptive analysis and vi f. We find that organization growth is dependent of firm size; so, Gibrat's Law does not hold. We find that a significant, positive relationship exists among firm research and development intensity and firm growth. We find that a significant, positive relationship exists among organization profitability and firm growth. We find that a significant, positive relationship exists between firm dividend payout and firm growth. We find that a significant, positive relationship exists among firm agency cost i-e asset utilization ratio and firm growth. We find that a significant, negative relationship exists between firm FCF and organization growth. Finally, we conclude that firm growth persists.