Impact of Sustainable Growth on Stock Returns and Systematic Risk An Empirical Study on Indian Manufacturing Firms

Abstract

While traditional measures of a firm s success have focussed more on rubrics like sales and profitability, several firm managers, venture investors and researchers have come to acknowledge the need of contemporary and more appropriate measures of firm success due to the change the business environment has undergone in the last few decades. The hurdles and problems faced by businesses today are different from the challenges faced by firms say, two decades ago. Thus, identification of other more appropriate firm performance measures has received much attention of stakeholders, and measures like firm growth have come to be recognized as a superior measure of firm success. The issue related to appropriateness of different growth measures as firm success parameters has been addressed by a number of researchers (Lockwood and Prombutr, 2010; Yao, Yu, Zhang, and Chen, 2011; Li, Becker, and Rosenfeld, 2012). Various studies have focused on growth related performance measures to address new metric needs. For example Cooper, Gulen, and Schill (2008) studied the impact of asset growth on stock returns. Buenafe, Bohnett, and Patrick (2009) studied the impact of economic growth on performance of firms. Long term output growth was found to have a significant positive relationship with stock performance (Lee, 1996). Undoubtedly, studies have provided a firm theoretical base to examine these relationships using past growth rates of firms. However, finance literature seems to lack substantially when it comes to an examination of growth that firm can achieve in the future. I seek to make a contribution with this effort to fill this gap in this growing literature base. I built my effort to reconcile discussions related to the impact of different variables depicting firm performance on firm stock returns and risk.