Are historic growth patterns an indication of future growth patterns?

Abstract

Over the last decade or two, much has been made of high and exceptionally high growth rates. In this paper, sales growth rates for industrial companies listed in South Africa are examined for the period 1974 to 2002.Results indicate that companies growing above the median for consecutive years actually persisted in showing a growth rate above the median, which was better than expected from the binomial distribution. Tests showed that this result was repeated in companies with consecutive growth rates in the upper quartile and upper decile. It can therefore be deduced that companies with a history of above median, high and exceptionally high growth rates, do tend to maintain these types of growth rates.This investigation also found that, although there is a good chance that companies with growth rates in the upper decile for two consecutive years will again grow within the upper decile the following year, the chance is also better than expected that such a company will not survive the following year, demonstrating the risk accompanying such an exceptionally high growth rate.