Growth is regarded as essential if companies are to remain vital and competitive. Using a large unbalanced panel data set of Sri Lankan listed companies surviving over the period of 1997 to 2006, the purpose of this study is to examine the determinants of firm growth. The fixed effect panel data regression model used in this study indigenizes both micro and macro variables as determinants of firms’ growth measured with market to book value of equity. The results of the regression revealed that availability of financial resources proved to be important determinants of firm growth. Both internally generated funds and the use of debt finance provide means to finance more growth opportunities as these factors proved to be the most statistically significant explaining the growth of firms analyzed. Further, the overall economic performance of the country together with well performing equity market also helps to boost firms’ growth.
Key Words: firm’s growth, panel data, firm specific factors, macro economic factors, sectoral diversity
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Department of Management Studies, Open
University of Sri Lanka