Small Business Economics

, Volume 44, Issue 2, pp 231–253

The heterogeneous dynamics between growth and profits: the case of young firms



While there is an increasing interest in the literature about the relationship between profits and business growth, the empirical evidence is mixed and inconclusive. This can be explained by the difficulty of fully addressing the complex nature of this relationship. Building on resource-based and evolutionary considerations, the present study investigates the dynamics between growth and profits of young firms by explicitly considering the endogeneity and heterogeneity aspects of the relationship. Data are based on a cohort of Spanish manufacturing firms tracked during the period 1996–2010. The results indicate that young firm growth has a positive impact on profits. In contrast, the effect of profits on growth is not significant. Neither is there a significant correlation between past and current growth. Importantly, we find that the results are strongly influenced by inter-firm heterogeneity. Implications from these findings are discussed.


Young firms Firm growth Profits System GMM Endogeneity Heterogeneity 

JEL Classifications

L25 L26 M13 

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Entrepreneurial Development Programme (PRODEM), Institute of IndustryUniversidad Nacional de General SarmientoLos PolvorinesArgentina
  2. 2.Department of BusinessUniversitat Autònoma de BarcelonaBellaterraSpain

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