IDEAS home Printed from https://ideas.repec.org/a/kap/apfinm/v30y2023i2d10.1007_s10690-022-09376-6.html
   My bibliography  Save this article

Is the Growth of Companies Influencing Their Financial Condition Depending on Their Size: S&P 500 Listed Companies Example

Author

Listed:
  • Monika Bolek

    (University of Lodz)

  • Agata Gniadkowska-Szymańska

    (University of Lodz)

Abstract

The goal of this paper is related to the analysis of the earnings per share growth and the financial condition of companies as measured by Altman Z-Score Model and their relation. The research has been carried out on the example of S&P500 Index listed companies. The correlation and OLS panel data models with fixed effects were tested. The results indicate that the relationship between the EPS growth and Altman Z-Score is not linear and the smaller the company, the higher its growth index. In most of cases the growth of EPS influenced the Altman Z-scores in a positive way. On contrary in the group of medium size companies, EPS growth influenced the financial condition in a negative way. The article fills the gap related to the growth, the size and financial condition of the company that can improve if the management of growth is efficient.

Suggested Citation

  • Monika Bolek & Agata Gniadkowska-Szymańska, 2023. "Is the Growth of Companies Influencing Their Financial Condition Depending on Their Size: S&P 500 Listed Companies Example," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(2), pages 323-337, June.
    • Handle: RePEc:kap:apfinm:v:30:y:2023:i:2:d:10.1007_s10690-022-09376-6
    DOI: 10.1007/s10690-022-09376-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10690-022-09376-6
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10690-022-09376-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bruce M. Burton & A. Alasdair Lonie & David M. Power, 1999. "The Stock Market Reaction to Investment Announcements: The Case of Individual Capital Expenditure Projects," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(5‐6), pages 681-708, June.
    2. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    3. Per Davidsson & Frédéric Delmar & Johan Wiklund, 2006. "Entrepreneurship and the Growth of Firms," Books, Edward Elgar Publishing, number 3971.
    4. Rudra P. Pradhan, 2018. "Development of stock market and economic growth: the G-20 evidence," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(2), pages 161-181, August.
    5. Pilotte, Eugene, 1992. "Growth Opportunities and the Stock Price Response to New Financing," The Journal of Business, University of Chicago Press, vol. 65(3), pages 371-394, July.
    6. Edward I. Altman, 1968. "The Prediction Of Corporate Bankruptcy: A Discriminant Analysis," Journal of Finance, American Finance Association, vol. 23(1), pages 193-194, March.
    7. Enrico Battisti & Luigi Bollani & Nicola Miglietta & Antonio Salvi, 2020. "The impact of leverage on the cost of capital and market value," Management Research Review, Emerald Group Publishing Limited, vol. 43(9), pages 1081-1096, March.
    8. Laurel A. Franzen & Kimberly J. Rodgers & Timothy T. Simin, 2007. "Measuring Distress Risk: The Effect of R&D Intensity," Journal of Finance, American Finance Association, vol. 62(6), pages 2931-2967, December.
    9. Hart, Oliver & Zingales, Luigi, 2017. "Companies Should Maximize Shareholder Welfare Not Market Value," Journal of Law, Finance, and Accounting, now publishers, vol. 2(2), pages 247-275, November.
    10. Dunne, Paul & Hughes, Alan, 1994. "Age, Size, Growth and Survival: UK Companies in the 1980s," Journal of Industrial Economics, Wiley Blackwell, vol. 42(2), pages 115-140, June.
    11. Jo Danbolt & Ian Hirst & Eddie Jones, 2011. "The growth companies puzzle: can growth opportunities measures predict firm growth?," The European Journal of Finance, Taylor & Francis Journals, vol. 17(1), pages 1-25.
    12. Bruce M. Burton & A. Alasdair Lonie & David M. Power, 1999. "The Stock Market Reaction to Investment Announcements: The Case of Individual Capital Expenditure Projects," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 26(5&6), pages 681-708.
    13. Enrico Battisti & Luigi Bollani & Nicola Miglietta & Antonio Salvi, 2020. "The impact of leverage on the cost of capital and market value," Management Research Review, Emerald Group Publishing Limited, vol. 43(9), pages 1081-1096, March.
    14. Thomas W. Bates, 2005. "Asset Sales, Investment Opportunities, and the Use of Proceeds," Journal of Finance, American Finance Association, vol. 60(1), pages 105-135, February.
    15. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    16. Igor Stubelj, 2010. "Valuation of Slovene Publicly Traded Companies with a Valuation Model Based on Expected Earnings and Growth Opportunities," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 8(1), pages 023-047.
    17. Jonathan B. Berk & Richard C. Green & Vasant Naik, 1999. "Optimal Investment, Growth Options, and Security Returns," Journal of Finance, American Finance Association, vol. 54(5), pages 1553-1607, October.
    18. Hart, Oliver D. & Zingales, Luigi, 2017. "Companies Should Maximize Shareholder Welfare Not Market Value," Working Papers 267, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    19. Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, September.
    20. Piotroski, JD, 2000. "Value investing: The use of historical financial statement information to separate winners from losers," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 1-41.
    21. Frédéric Delmar & Johan Wiklund & Per Davidsson, 2006. "Entrepreneurship and the Growth of Firms," Post-Print hal-01892801, HAL.
    22. Frédéric Delmar & Johan Wiklund & Per Davidsson, 2006. "Entrepreneurship and the Growth of Firms," Post-Print hal-01892798, HAL.
    23. Dirk Czarnitzki & Julie Delanote, 2013. "Young Innovative Companies: the new high-growth firms?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(5), pages 1315-1340, October.
    24. repec:hal:journl:hal-02298077 is not listed on IDEAS
    25. Grice, John Stephen & Ingram, Robert W., 2001. "Tests of the generalizability of Altman's bankruptcy prediction model," Journal of Business Research, Elsevier, vol. 54(1), pages 53-61, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Olga Heralová, 2024. "Merger Spin-off Project and Its Effect on Financial Health Of Post-Transformation Companies," International Journal of Economic Sciences, European Research Center, vol. 13(1), pages 1-12, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Agata Gniadkowska-Szymańska & Anna Pluskota & Monika Bolek, 2024. "The condition of companies in relation to their growth on example of NYSE and NASDAQ," Future Business Journal, Springer, vol. 10(1), pages 1-9, December.
    2. Heidi Quah & Janto Haman & Dharmendra Naidu, 2021. "The effect of stock liquidity on investment efficiency under financing constraints and asymmetric information: Evidence from the United States," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(S1), pages 2109-2150, April.
    3. José Miguel Giner & María Jesús Santa-María & Antonio Fuster, 2017. "High-growth firms: does location matter?," International Entrepreneurship and Management Journal, Springer, vol. 13(1), pages 75-96, March.
    4. Reid, Gavin C & Xu, Zhibin, 2009. "Growth and Survival Determinants of Chinese Private Firms: Fieldwork evidence and econometric estimates," SIRE Discussion Papers 2009-60, Scottish Institute for Research in Economics (SIRE).
    5. Ciampi, Francesco, 2015. "Corporate governance characteristics and default prediction modeling for small enterprises. An empirical analysis of Italian firms," Journal of Business Research, Elsevier, vol. 68(5), pages 1012-1025.
    6. Isabel Abinzano & Pilar Corredor & Beatriz Martinez, 2021. "Does family ownership always reduce default risk?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(3), pages 4025-4060, September.
    7. George, Thomas J. & Hwang, Chuan-Yang, 2010. "A resolution of the distress risk and leverage puzzles in the cross section of stock returns," Journal of Financial Economics, Elsevier, vol. 96(1), pages 56-79, April.
    8. Sven-Olov Daunfeldt & Niklas Elert & Dan Johansson, 2016. "Are high-growth firms overrepresented in high-tech industries?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 25(1), pages 1-21.
    9. Alex Coad & Werner Hölzl, 2012. "Firm Growth: Empirical Analysis," Chapters, in: Michael Dietrich & Jackie Krafft (ed.), Handbook on the Economics and Theory of the Firm, chapter 24, Edward Elgar Publishing.
    10. Douglas, Ella & Lont, David & Scott, Tom, 2014. "Finance company failure in New Zealand during 2006–2009: Predictable failures?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(3), pages 277-295.
    11. Nason, Robert S. & Patel, Pankaj C., 2016. "Is cash king? Market performance and cash during a recession," Journal of Business Research, Elsevier, vol. 69(10), pages 4242-4248.
    12. Almaskati, Nawaf & Bird, Ron & Yeung, Danny & Lu, Yue, 2021. "A horse race of models and estimation methods for predicting bankruptcy," Advances in accounting, Elsevier, vol. 52(C).
    13. Manzaneque, Montserrat & Priego, Alba María & Merino, Elena, 2016. "Corporate governance effect on financial distress likelihood: Evidence from Spain," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 19(1), pages 111-121.
    14. Baños-Caballero, Sonia & García-Teruel, Pedro J. & Martínez-Solano, Pedro, 2014. "Working capital management, corporate performance, and financial constraints," Journal of Business Research, Elsevier, vol. 67(3), pages 332-338.
    15. Shaikh, Ibrahim A. & O'Brien, Jonathan Paul & Peters, Lois, 2018. "Inside directors and the underinvestment of financial slack towards R&D-intensity in high-technology firms," Journal of Business Research, Elsevier, vol. 82(C), pages 192-201.
    16. Lin, Hsiou-Wei William & Lo, Huai-Chun & Wu, Ruei-Shian, 2016. "Modeling default prediction with earnings management," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 306-322.
    17. Stefano Bianchini & Giulio Bottazzi & Federico Tamagni, 2017. "What does (not) characterize persistent corporate high-growth?," Small Business Economics, Springer, vol. 48(3), pages 633-656, March.
    18. Marc Berninger & Markus Klug & Dirk Schiereck, 2018. "Börsenrückzüge infolge steigender Corporate-Governance-Anforderungen – Empirische Evidenz von 13 europäischen Kapitalmärkten [Delistings due to Increased Corporate Governance Requirements – Empiric," Schmalenbach Journal of Business Research, Springer, vol. 70(4), pages 351-391, December.
    19. Koke, Jens, 2002. "Determinants of acquisition and failure: evidence from corporate Germany," Structural Change and Economic Dynamics, Elsevier, vol. 13(4), pages 457-484, December.
    20. Elert, Niklas & Stam, Erik & Stenkula, Mikael, 2019. "Intrapreneurship and Trust," Working Paper Series 1280, Research Institute of Industrial Economics.

    More about this item

    Keywords

    Company growth; Financial condition; Altman Z-score; EPS growth;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:apfinm:v:30:y:2023:i:2:d:10.1007_s10690-022-09376-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.