Is Growth Risky? Evidence from India

Abstract

Today, firm performance must be measured not only on traditional metrics but also on those that reflect the changing imperatives and new metric knowledge. Thus, the focus of managers, investors, and researchers is shifting from rubrics like sales and profitability to growth as a more appropriate measure of firm performance. We aim to highlight the effects that growth of a firm can have on the level of its systematic risk. Using a sample of 203 firms across nine industries taken from the Indian manufacturing sector for a period of 17 years (1998–2014), we develop and test a panel vector autoregressive (VAR) model to analyze the causal relationship between growth aspects and systematic risk of firms. Results depict that a growth option available to firms increase their level of systematic risk and the risk decreases when firms start chasing this growth by increasing their assets in place. Sustainable growth rate, which depicts the growth potential of firms, plays an important role in reducing the level of systematic risk. The findings of this chapter are relevant to managers who think that growth is always beneficial.

Citation

Arora, L., Kumar, S. and Verma, P. (2019), "Is Growth Risky? Evidence from India", Biswas, R. and Michaelides, M. (Ed.) Essays in Financial Economics (Research in Finance, Vol. 35), Emerald Publishing Limited, Leeds, pp. 53-70. https://doi.org/10.1108/S0196-382120190000035003