Determinants Of A Fast-Growing Firm’s Profits: Empirical Evidence For Slovenia

Abstract

Abstract This paper seeks to explain the relationship between a firm’s profitability and firm size, leverage ratio and labour costs – using a sample of 782 Slovenian fast-growing firms from the years 2008 and 2009. We determined that profitability is negatively related to the firm size and leverage ratio, but positively to the labour costs. These results illustrate that, with increasing firm size, a fast-growing firm becomes less profitable. The negative coefficient for the leverage ratio indicates that the higher the extent to which debts were used as the source of financing, the lower the profits. One explanation for this is that profitable, fast-growing firms rely on their equity capital. Alternatively, higher-leveraged firms bear greater risks of bankruptcy; consequently, creditors are reluctant to approve credit for such clients. The positive association between labour costs and profitability implies that the higher the labour cost, the higher the profitability of fast-growing firms.