SUSTAINABLE GROWTH RATE AND FIRM PERFORMANCE: A CASE STUDY IN MALAYSIA

Abstract

Purpose: Growth for business is significant especially for company’s goal because the company can maintain their performance without running into financial problems. Financial problems or financial distress can make the company not enough capital or financial resources to run company activities. This research investigate the association between firm performance and sustainable growth rate.
 Methodology:The indicators for sustainable growth rate are calculated by using Higgins model and the measurements for firm performance such as financial leverage (debt ratio and equity ratio), liquidity (current ratio), and assets efficiency (total asset turnover). The data of the research consists of 226 companies from all sectors except for a financial sector of FBMKLCI Bursa Malaysia over 11 years’ period from 2005 until 2015. This analysis used descriptive method and multiple regression analysis.
 Findings:The results found that there is a significant relationship between debt ratio, equity ratio, total asset turnover and size of the firm with sustainable growth rate.
 Practical Implications:The sustainable growth rate is one of the valuable financial tools especially for managers used to gauging financial and operating decision, whether to sustain, increase or decrease.
 Social Implications: The results of this study also enable the company to manage its financial and operating policy towards healthy growth without having additional financial problem.
 Research Limitations/Implications:This study focuses on all sectors except for financial sector of Bursa Malaysia to identify an implication to the role of debt and financing decisions for sustainable firm’s growth over 11 years period from 2005 until 2015.
 Originality/Value: Our results are suitable for companies to manage their solid performance to sustain firm’s growth in the future undertakings.