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Is All Growth Created Equal?: The Predictive Value of Growth Strategy
Carol L Anilowski,
Purdue University
ABSTRACT. This paper investigates the implications of firms’ growth strategies for future growth in net operating assets. Firms have two main strategies at their disposal to expand operations: organic growth or merger and acquisition. Organic growth firms are those that grow from within by constructing new facilities, developing new products, and improving production techniques. Acquirer growth firms expand their operations by purchasing another business or division and integrating the newly acquired assets with their own operations. In a simple model conditioning on how a firm achieved past growth, I find that the strategy used is informative for future growth in net operating assets, future profitability, and stock returns. Organic firms have higher rates of growth in net operating assets in the future and are less profitable, yet experience greater future abnormal stock returns.
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