Company growth and growth opportunities on the example of some EU stock exchanges in the light of market characteristics

Authors

DOI:

https://doi.org/10.18778/0208-6018.359.04

Keywords:

company growth, growth opportunities, stock markets

Abstract

This paper analyzes the relationship between growth opportunity measures and the future growth of companies. If there is a correlation between a company’s growth potential and its real growth, then the markets are more predictable and effective. The survey was conducted on the example of the following European markets: Austria, the Baltic Countries, Hungary, France, Poland, and Germany. The goal of this paper is to assess the relationship between growth opportunity measures and the future growth of companies listed on the stock exchanges of some markets in the European Union. The countries considered can be classified according to the size of the state, market liquidity, and the maturity of the exchange. Those external factors were expected to influence the strength of the growth and its opportunity relationship. It was found that growth opportunity measures based on market prices have predicting power for the future growth of companies. They are also strongly related to companies’ future growth in large countries and weakly related to future growth in small countries. This paper adds to the literature on the application of growth opportunity measures regarding market characteristics. These results are in line with the view that market liquidity should increase its efficiency in revealing the value of stocks and the Comprehensive Advantage of Large Countries hypothesis.

Downloads

Download data is not yet available.

References

Bali T.G., Peng L., Shen Y., Tang Y. (2014), Liquidity Shocks and Stock Market Reactions, “The Review of Financial Studies”, vol. 27(5), pp. 1434–1485.
Google Scholar DOI: https://doi.org/10.1093/rfs/hht074

Biddle G.C., Ma M.L., Song F.M. (2022), Accounting conservatism and bankruptcy risk, “Journal of Accounting, Auditing & Finance”, vol. 37(2), pp. 295–323.
Google Scholar DOI: https://doi.org/10.1177/0148558X20934244

Bolek M., Pietraszewski P., Wolski R. (2021). Companies’ growth vs. growth opportunity: Evidence from the regular and alternative stock markets in Poland, “Acta Oeconomica”, vol. 71(2), pp. 279–307.
Google Scholar DOI: https://doi.org/10.1556/032.2021.00014

Brealey R.A., Myers S.C. (1981), Principles of Corporate Finance, McGraw-Hill, New York.
Google Scholar

Chen K. (2002), The influence of capital structure on company value with different growth opportunities, “SSRN Electronic Journal”, 313960.
Google Scholar DOI: https://doi.org/10.2139/ssrn.313960

Chordia T., Roll R., Subrahmanyam A. (2006), Liquidity and Market Efficiency, “Journal of Financial Economics”, vol. 87(2), pp. 249–268.
Google Scholar DOI: https://doi.org/10.1016/j.jfineco.2007.03.005

Cooper M.J., Gulen H., Schill M.J. (2008), Asset growth and the cross-section of stock returns, “Journal of Finance”, vol. 63(4), pp. 1609–1651.
Google Scholar DOI: https://doi.org/10.1111/j.1540-6261.2008.01370.x

Danbolt J., Hirst I .R., Jones E. (2011), The growth companies puzzle: can growth opportunities measures predict firm growth?, “The European Journal of Finance”, vol. 17(1), pp. 1–25.
Google Scholar DOI: https://doi.org/10.1080/13518470903448432

Delmar F. (2006), Measuring growth: methodological considerations and empirical results, “Entrepreneurship and the Growth of Firms”, vol. 1(1), pp. 62–84.
Google Scholar

Demirgüç Kunt A., Levine R. (1996), Stock markets, corporate finance, and economic growth: an overview, “The World Bank Economic Review”, vol. 10(2), pp. 223–239.
Google Scholar DOI: https://doi.org/10.1093/wber/10.2.223

Dimson E. (1979), Risk measurement when shares are subject to infrequent trading, “Journal of Financial Economics”, vol. 7(2), pp. 197–226.
Google Scholar DOI: https://doi.org/10.1016/0304-405X(79)90013-8

Erhardt E.C. (2021), Measuring the persistence of high firm growth: choices and consequences, “Small Business Economics”, vol. 56(1), pp. 451–478.
Google Scholar DOI: https://doi.org/10.1007/s11187-019-00229-7

Fama E.F., French K.R. (2007), The anatomy of value and growth stock returns, “Financial Analysts Journal”, vol. 63(6), pp. 44–54.
Google Scholar DOI: https://doi.org/10.2469/faj.v63.n6.4926

Greenwood J., Jovanovi B. (1990), Financial development, growth, and the distribution of income, “Journal of Political Economy”, vol. 98(5, Part 1), pp. 1076–1107.
Google Scholar DOI: https://doi.org/10.1086/261720

Hashai N., Zahra S. (2022), Founder team prior work experience: An asset or a liability for startup growth?, “Strategic Entrepreneurship Journal”, vol. 16(1), pp. 155–184.
Google Scholar DOI: https://doi.org/10.1002/sej.1406

Hodgson A., Okunev J. (2021), Long term equity risk premiums in the UK and US: A cautionary tale of weak mean reversion, “The European Journal of Finance”, pp. 1–17.
Google Scholar DOI: https://doi.org/10.1080/1351847X.2021.2007150

Hull M., McGroarty F. (2014), Do emerging markets become more efficient as they develop? Long memory persistence in equity indices, “Emerging Markets Review”, no. 18, pp. 45–61.
Google Scholar DOI: https://doi.org/10.1016/j.ememar.2013.11.001

Hunt A., Moyer S., Shevlin T. (2000), Earnings volatility, earnings management, and equity value, unpublished working paper, University of Washington, Washington.
Google Scholar

Kallapur S., Trombley M.A. (1999), The Association between Investment Opportunity Set Proxies and Realized Growth, “Journal of Business Finance and Accounting”, vol. 26(3–4), pp. 505–519.
Google Scholar DOI: https://doi.org/10.1111/1468-5957.00265

Kester W.C. (1984), Today’s Options for Tomorrow’s Growth, “Harvard Business Review”, vol. 62(2), pp. 153–160.
Google Scholar

King R.G., Levine R. (1993), Finance, entrepreneurship, and growth, “Journal of Monetary economics”, vol. 32(3), pp. 513–542.
Google Scholar DOI: https://doi.org/10.1016/0304-3932(93)90028-E

Kuznets P.W. (1985), Government and economic strategy in contemporary South Korea, “Pacific Affairs”, vol. 58(1), pp. 44–67.
Google Scholar DOI: https://doi.org/10.2307/2758009

Milner C., Westaway T. (1993), Country size and the medium-term growth process: some cross-country evidence, “World Development”, vol. 21(2), pp. 203–211.
Google Scholar DOI: https://doi.org/10.1016/0305-750X(93)90015-2

Mohd Daud S.N., Ahmad A.H., Ngah W.A.S.W. (2021), Financialization, digital technology and income inequality, “Applied Economics Letters”, vol. 28(16), pp. 1339–1343.
Google Scholar DOI: https://doi.org/10.1080/13504851.2020.1808165

North D.C. (1991), Institutions, “Journal of Economic Perspectives”, vol. 5(1), pp. 97–112.
Google Scholar DOI: https://doi.org/10.1257/jep.5.1.97

Ottoo R.E. (1998), Valuation of internal growth opportunities: The case of a biotechnology company, “The Quarterly Review of Economics and Finance”, vol. 38(3), pp. 615–633.
Google Scholar DOI: https://doi.org/10.1016/S1062-9769(99)80093-3

Ottoo R.E. (2020), Valuation of corporate growth opportunities: a real options approach, Routledge, New York–London.
Google Scholar DOI: https://doi.org/10.4324/9780203055977

Ouyang Y. (2016), Concept: Comprehensive Advantages of Large Countries (CAOLC), [in:] The Development of BRIC and the Large Country Advantage, Springer, Singapore, pp. 31–56.
Google Scholar DOI: https://doi.org/10.1007/978-981-10-0633-3_3

Pham S.D., Nguyen T.T.T., Do H.X. (2022), Effect of futures trading on the liquidity of underlying stocks: Evidence from Vietnam, “Pacific-Basin Finance Journal”, vol. 73, 101772.
Google Scholar DOI: https://doi.org/10.1016/j.pacfin.2022.101772

Rudiyanto A., Paramita P.D., Suprijanto A. (2018), Effect of Growth Opportunity, Capital Structure, Management Ownership, Corporate Social Responsibility, to the Value of the Company with Profitability as a Moderating Variable, “Journal of Accounting”, vol. 4(4), pp. 1–14.
Google Scholar

Ryu D., Yu J. (2022), Sentiment‐dependent impact of funding liquidity shocks on futures market liquidity, “Journal of Futures Markets”, vol. 42(1), pp. 61–76.
Google Scholar DOI: https://doi.org/10.1002/fut.22274

Stock market capitalization, in dollars – Country rankings (n.d.), https://www.theglobaleconomy.com/rankings/stock_market_capitalization_dollars/ (accessed: 20.05.2021).
Google Scholar

Tobin J. (1969), A General Equilibrium Approach to Monetary Theory, “Journal of Money, Credit, and Banking”, vol. 1(1), pp. 15–29.
Google Scholar DOI: https://doi.org/10.2307/1991374

Weinzimmer L.G., Nystrom P.C., Freeman S.J. (1998), Measuring organizational growth: Issues, consequences, and guidelines, “Journal of Management”, vol. 24(2), pp. 235–262.
Google Scholar DOI: https://doi.org/10.1177/014920639802400205

Youhao T. (1999), On Big Country’s Economy also on Chinese Economic Development Strategy, “Reform of Economic System”, no. 3, pp. 127–148 .
Google Scholar

Zhang K.H. (2007), International production networks and export performance in developing countries: Evidence from China, “Chinese Economy”, vol. 40(6), pp. 83–96.
Google Scholar DOI: https://doi.org/10.2753/CES1097-1475400605

Downloads

Published

2022-11-18

How to Cite

Bolek, M., Gniadkowska-Szymańska, A., & Pietraszewski, P. (2022). Company growth and growth opportunities on the example of some EU stock exchanges in the light of market characteristics. Acta Universitatis Lodziensis. Folia Oeconomica, 2(359), 63–100. https://doi.org/10.18778/0208-6018.359.04

Issue

Section

Articles

Most read articles by the same author(s)

Similar Articles

<< < 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 > >> 

You may also start an advanced similarity search for this article.