Sustainable Growth Rate: Between Fixed Asset Growth and Firm Value

Abstract

This study seeks to test the effect of fixed asset growth on sustainable growth rate and the role of sustainable growth rate in mediating the impact of fixed asset growth rate on firm value. This study involves 134 Indonesian manufacturing firms in 2013-2018. We analyze the data by using the panel data regression with both the fixed and random effect models. The results demonstrate that fixed asset growth positively affects sustainable growth rate. Besides, the findings show the positive impact of sustainable growth rate on firm value and that sustainable growth rate strengthens the impact of fixed asset growth on firm value. This study contributes to extend the previous literature on sustainable growth rates. In addition, it has several implications that are relevant for firm managers and investors relating to the relationship between sustainable growth and asset investment and firm value. However, this study is subject to several caveats that need to be emphasized by future studies.

Keywords

• firm value
• fixed asset growth
• pecking order theory
• sustainable growth rate