How Does Your Garden Grow? The Interface of Employee and Sales Growth Post IPO

June 1, 2022

Firms often succumb to a growth imperative, yet little is known about how congruence between various forms of growth affects firm value. We argue that the (in)congruence between net hiring rates (e.g., growth in the number of employees) and sales growth has significant implications for firm value, assessed via Tobin’s Q. We further contend that R&D expenditures and industry dynamism—factors that influence a firm’s ability to realize value creation—moderate the relationship between growth pattern and firm value. We use a sample of 1,181 firms that conducted their initial public offerings from 1996–2006 to test our conceptual model. Findings indicate that employee-dominant growth is most strongly associated with firm value, and that high levels of R&D expenditures and industry dynamism intensify these relationships.

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