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Jurnal Simposium Nasional Akuntansi (SNA 7) 1

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									SNA VII DENPASAR – BALI, 2-3 DESEMBER 2004 | Download @
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        LEVEL OF GROWTH AND ACCOUNTING PROFITABILITY
            IN CORPORATE VALUE CREATION STRATEGY

                                          By
                                     Erni Ekawati

                                     ABSTRACT

       This research examines associations between level of growth and
       accounting profitability drawn from corporate value creation strategy.
       Results demonstrate that although the accounting profitability
       measures generally rise with sales growth, an optimal point exists
       beyond which further growth contributes to value destruction and
       adversely affects profitability.

I. Introduction
Investment industry demands that managers have to maximize the company’s sales or
earning growth over time. This presumption is based on the belief that growth can
increase the accounting profitability, and is synonymous with shareholder value
creation. Corporate strategies can then be assessed in term of their expected effect on
accounting profitability and growth. As a consequence, traditional incentive schemes
of compensation is often tied to the manager’s ability to beat budgeted increase in
sales or earnings as measures of growth and in turn increasing accounting profitability
ratios, such as return on equity, return on assets, and return on investment.
         This view contrasts with perspectives that accounting profitability ratios alone
cannot be used as an indicator of a profitable business. As Hax and Majluf (1984:
214) point out that it is economic, and not accounting profitability that determines the
capability for wealth creation on the part of the firm. It is perfectly possible that the
company is in the black, and yet its market value is way below its book value, which
means that, from an economic perspective, its resources would be more profitable if
deployed in an alternative investment of similar risk.
         Based on the financial management perspective, the ultimate goal of the
company is to maximize shareholders’ wealth by maximizing the firm value. The
indicator of firm value is stock price. The higher the stock price the higher the value
of the firm. Value must be created through company’s business over time in order to
reach the maximum value of the firm above the book value.
         Value creation strategy provides a conceptual and operational framework for
evaluating corporate strategies (Albert and MacTaggart, 1979 and Fruhan, 1979).
This strategy establishes firm value using two determinants of value, namely, growth
and profitability. Interest in value creation strategy is increasing in practices. In fact
the use of bonuses tied to market value of company stock, as opposed to the
traditional incentive scheme using accounting profitability only, has made value
creation a priority issues in many firms. In addition, academicians have considered
value creation issues related to company sales and asset growth in order to maximize
the value of the firm (Fruhan, 1984, Higgins and Kerin, 1983).
         Ramezani, Soenen, and Jung (2002) found that maximizing the growth of
sales or earnings is not identical to maximizing profitability and in turn maximizing
the value of the firm. The ability of the company to determine the optimal growth of
sales or earnings could drive the company through maximizing the value of the firm.
Value creation could be obtained along the way up to reaching the optimal growth


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rate. The further growth rate would not contribute to the value creation. This finding
was consistent with Fuller and Jensen (2002) warning about the dangers of
conforming to market pressures of growth.
        This research is concerned with three broad questions that are of considerable
theoretical and practical interests. First, what is the effect of sales growth on
measures of corporate profitability? Second, how are the combined sales growth and
profitability influenced the company’s value creation strategy? Third, is the optimal
growth rate to maximize profitability the same as that of to maximize the value of the
firm? Understanding the nature of these effects will shed light on whether an optimal
growth rate that maximizes profitability exists, and whether the optimal level of the
growth rate is different from that of for maximizing firm value. If the level of growth
is different within two conditions of profit and value maximization, managers should
choose the level of growth that maximizes the value of the firm. Above the optimal
level of growth the company will not generate value creation but value destruction.
        Despite the apparent popularity of value creation strategy, its empirical
validity has yet to be demonstrated for Indonesian companies.                  Without
comprehensive empirical validation, managers may justifiably be skeptical of the
viability of value creation strategy, as a framework for choosing among strategic
alternatives. Empirical evidence related to the relationships between growth,
profitability, and value creation of US companies are available (Varaiya, Kerin, and
Weeks, 1987; Shin and Stulz, 2000; Ramezani, Soenen, and Jung , 2002; Fuller and
Jensen, 2002). All the results are consistent that the level of optimal growth rate
exists to maximize the value of the firm. However, evidence from companies in
emerging market is hardly found. It is possible that under inefficient market
condition, the measure of value derived from the capital asset pricing model may not
reflect the fair value of the company. Therefore, should the same phenomena be
empirically found from companies in emerging market, the study would indirectly
provide the test of indication of emerging market following efficient market behavior.
Using Ramezani, Soenen, and Jung (2002) methodology, this study would provide an
additional empirical evidence from public companies listed in Jakarta Stock
Exchanges, one of emerging markets in Asia, and demonstrate whether the similar
phenomena applies.

II.Theoretical Background and Hypotheses Development
A. Growth and Profitability
Product life cycle concept is used to explain the relationship between growth and
profitability. Products move through four identifiable phases-introduction, growth,
maturity, and decline. During the introduction, a firm focuses on product
development and market development. The objective is to gain market acceptance.
During the growth phase, the focus move to enlarge capacity and increase market
share. During maturity phase, as competition becomes more intense, the emphasis
shifts into reducing costs through improve capacity utilization (economies of scale)
and more efficient production process. During the decline phase, firms exit the
industry as sales declines and profit opportunities diminish. In line with the product
life cycle explanation, the sales growth will reach the optimal level on the third phase
or maturity in which the growth of sales will maximize profit. Beyond the maturity
phase, the further growth will diminish profit. However, due to the traditional
incentive schemes of compensation that is tied with the growth of sales or earnings,
managers tend to push the growth beyond the optimal point. Managers should have
slowed down the growth when reaching the maturity stage. They should have started


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to plan some other alternative lines of business before it will be too late to quit from
the existing business. Unfortunately, the growth tied incentive scheme inhibits
managers to take preventive action to maintain the right level of profitability.
         Selling and Stickney (1998) found that profitability measured as return on
asset (ROA) differed across time and through time as product pass through different
stages in their life cycles. Ramezani, Soenen, and Jung (2002) tested the effect of
sales growth on company’s profitability. In their study, the sample of the companies
are sorted into four quartiles based on their growth of sales and earnings. The results
indicated that the companies’ profitability increased as the growth of sales increased.
However, on the fourth quartile, declining on profitability occurred as sales continued
to grow. This study shows that there is an optimal growth that should be reached
before diminishing profitability occurred. The enforcement of further growth beyond
the optimal level resulted in even more diminishing profitability. Accordingly, the
following hypothesis is stated:
    H1: Up to some certain level, increase in sales growth will increase corporate
    profitability, however, beyond the optimal level increase in sales growth will
    have a reversed effect.

B. Growth and Value Creation
Growth requires additional investment on operating assets and working capital. To
ensure that the growth of sales results in value creation for the company, each
additional investment project must have a positive net present value (NPV) of
expected future net cash flows after initial investments. Project having a positive
NPV would contribute to the stock price increase (Mc. Connel and Muscarella,1985).
The increase of the stock price will increase stock return. The increase of stock return
above the required rate of return will increase stockholders wealth beyond their
expectation, termed as abnormal return. Thus, abnormal return can be used as a
measured of company’s value creation which is the difference between actual return
and expected return.
        Further study by Mitra, Owers, and Biswas (1991) showed the relationship
between NPV of expected net cash flows and stock price. Tobin’s q method was used
to determine whether the company was a “value creator” or “over investor”. The
“value creator” company with the Tobin’s q ratio greater than 1 experienced an
increase in the stock price as the company invested in the new project. On the
contrary, “over investor” company indicated by Tobin’s q ratio (less than 1)
experienced a stock price decline as the company decided an additional investment,
while divestiture could increase the stock price.
        These findings show that the relation between growth and value creation
follows a similar direction as the relation between growth and profitability.
Accordingly, the following hypothesis is stated:
    H2: Up to some certain level, increase in sales growth will increase corporate
    value creation, however, beyond the optimal level increase in sales growth will
    have a reversed effect.

C. Accounting Profitability and Value Creation
Literatures in financial management claimed that the goal of a company to maximize
accounting profitability is not synonymous with that of to maximize the value of the
firm.
This contention is based on some limitations exposed by the measures of accounting
profitability such as return on equity (ROE), return on asset (ROA), and return on


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investment (ROI). The limitations are claimed due to the use of accounting profit
which does not fully reflect cash flows, and the ignorance of cost of capital
consideration required to create profit. However, based on the previous studies (Dodd
and Johns, 1999; Garvey and Millbourn, 2000; Chen and Dodd, 2002), profitability
ratios had a positive relationship with stock prices. Should profitability ratios have a
positive relationship with stock prices, the level of growth maximizing the
profitability should be the same as that of maximizing the value of the firm.
        However, the weaknesses on the accounting measures of profitability ratios
will direct into a conjecture that the level of growth that maximizes the value of the
firm may not be the same as that of maximizing the company’s profitability. This
notion is based on the consideration of ignoring the cost of capital in the computation
of accounting profitability ratios. Varaiya, Kerin, and Weeks (1987) used the term
spread to identify the ROE minus cost of equity capital, in which positive spread
would contribute to the values creation, while negative spread to value destruction.
Thus, increase in ROE alone would not guarantee to the increase in firm value. They
empirically demonstrated the combination of expected growth and expected positive
spread that are associated with higher firm value. This finding suggested that value
creation clearly resulted from pursuing growth strategies that were not only profitable
but also creating a positive spread. It is possible that the sales or earning growth still
contributes to the increase in profitability but not to the increase in company’s value.
This condition occurs because additional growth requires higher costs than the
benefits created from it. Accordingly, the hypothesis is stated as follows:
    H3: The level of sales growth that maximizes the value of the firm is lower than
    that of maximizing the company’s profitability.

D. Other Factors Influencing Profitability and Value Creation
Previous studies show that there are many factors that influence the company’s
performance, whether the performance is measured by profitability ratios or value
driven indicators such as economic value added and market value added. This study
includes variables that have been cross-sectionally identified by the previous
researches affecting the companies’ performance (Philips, 1999; Campbell and
Shiller, 1998; Shin and Stultz, 2000; Opler, Pinkowitz, Stulz, and Williamson, 1999).
The variables affecting company’s profitability are economic conditions, firm size,
market-to-book ratios, price-earning ratios, dividend payments, and operational
flexibility, and those affecting value creation are economic condition, firm size, and
systematic risk. These variables are included in the analysis as control variables so the
effects of growth levels on profitability and value creation can be identified without
interfered by other factors that have been identified by the previous researches
affecting the variables being studied.

III. Research Method
A. Data and Sample
The companies used as sample in this study are public companies listed in Jakarta
Stock Exchange from the year of 1998 to the year of 2002. The periods being
included in the sample are based on the availability of the capital market data from
Accounting Development Center of Gadjah Mada University, and financial data from
Indonesian Capital Market Directory. Following the standard practice, companies’
data from utilities and financial industry are excluded. The purposive sampling
procedures are used to determine the companies being included in the sample. The
criteria used are as follows:


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                 The company has to be listed until the year 2002.
                 -
                 The companies’ financial statements and the data required to
                 -
                 compute all the operational variables must be available.
There are 493 companies meeting the required criteria.

B. Data Analysis Procedures
For each year data in the sample, the companies are placed into quartiles based on
their sales growth. The first quartile contains the companies with the lowest level of
sales growth, the second quartile with the higher level and so forth. The sales growth
on year t is measured by the average annual sales growth for the last three years (year
t-3 to t). Some companies could move from one growth quartile to another from year
to year. To ensure the persistence of the result, persistent sample is formed. Persistent
sample contains only companies that belong to the same growth quartile for within at
least three years in a row. There are 224 companies meeting this criteria.
         Accounting profitability is measured by the following ratios:
     - Return on equity (ROE) = Net Income/Total Equity
     - Return on asset (ROANI) = Net Income/Total Assets
     - Return on asset (ROAOP)= Operating Profit/Total Assets
ROAOP shows rate of return that come from the company’s business operation only.
ROANI measures rate of return from core business activities and other activities such
as investment in other companies and contribution of financial leverage. These ratios
are computed in the end of each year.
         Following Bacidore, Boquist, Milburn, and Thakor (1997), value creation is
measured using the Jensen’s alpha derived from capital asset pricing model.
 Rit  R ft    i  iRmt  R ft   eit
Rit is stock return of company i at period t, Rmt is market return at period t, and R ft
is risk free rate at period t.  i is an intercept used as a measure of abnormal return or
value creation. One year estimation periods of stock daily return data are used to
compute the abnormal return in the end of each year 1. When alpha is positive,
shareholders have received compensation above their risk-adjusted opportunity cost
of capital. Conversely, when abnormal returns are negative, they have been
inadequately compensated for risk.
         Below is the list of variables influencing company’s profitability.

    Variables                   Proxy
    Economic conditions         Dummy variables for each year observation.
    Firm size                   Total sales.
    Book-to-market              Book value per share /(Price per share x number of
    Earning-price ratio         shares).
    Dividend payments           Earnings per share/Price per share
    Operational flexibility     Cash dividend per share
                                Fixed assets/Total assets

Expected signs for regression of firm size, dividend payment, and operating flexibility
against profitability are positive, while negative signs are expected for book-to-market
and earning price ratio.

1
 The corrected alpha calculation is adopted from capital market database from Accounting
Development Center of Gadjah Mada University. The market model is used to derive the alpha.


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        Below is the list of variables influencing the abnormal return or value creation.
   Variables                  Proxy
   Economic conditions        Dummy variables for each year observation.
   Profitability              ROAIN or ROAOP
   Firm size                  Total sales.
   Sistematic risk            Sensitivity of company return to the market return,
                              estimated by one year period daily return of the
                              company’s stock return against market return.

Expected signs for regression of firm size, profitability and systematic risk against
abnormal return are positive.

C. Model
To investigate the relationship between level of sales growth and company’s
profitability, the following multiple regression model is employed.
Model I:
                4             2002
ROA  a   bq Dq            c      y   D y  dSIZE  eBM  fEP  gDIV  hFXA  
               q 2       y 1999

where,
ROA: a vector profitability measure in which element represents a company in a
       particular year (panel data). Two profitability measures are used, namely,
       ROAIN and ROAOP.
a:     the regression intercept. It measures the conditional mean of the ROA for the
       first quartile in year 1998.
q:     a quartile
bq:    coefficient differentiating the quartiles. It measures difference in ROA across
       quartiles after other factors are controlled for. The null hypothesis was that
       companies in the second through the fourth quartiles are no different from
       companies in the first quartile; bq= 0 for q= 2, 3, 4.
Dq:    1 for companies in the qth quartile of sales growth and zero otherwise (q= 2, 3,
4).
cy:    influence of each year on ROA.
Dy:    a dummy variable for the year, Dy= 1 when y= 1999, 2000, 2001, and 2002,
       and 0 otherwise.
SIZE: firm size as a control variable having impact on ROA
BM: book-to-market ratio as a control variable having impact on ROA
DIV: dividend payments as a control variable having impact on ROA
FXA: operating flexibility as a control variable having impact on ROA
:     regression error

Regression coefficients of Dq are used to test H1. As moved to the higher quartiles
the coefficients of Dq should increase then decrease after reaching an optimal level.

       To investigate the link between level of growth and value creation, the
following multiple regression model is employed.

Model II:
         4             2002
  k   bq Dq       c       y   D y  lROA  mSIZE  nRISK  
        q 2          y 1999




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where,
:     a vector with elements representing a company’s estimated alpha in a
       particular year (panel data).
k:     estimate of the conditional mean of alpha; it measures difference in value
       creation across quartiles, after other factors have been controlled for.
:     regression error; it is assumed to be independent identically distributed (i.i.d).

Regression coefficients of Dq are used to test H2. As moved to the higher quartiles
the coefficients of Dq should increase then decrease after reaching an optimal level.
H3 is tested by observing the difference of the optimal level obtained from Model I
and Model II.

IV.Results and Discussions
A. Descriptive Statistics
Table 1 presents a comparison of performance measures, financial attributes, and
asset pricing parameters for companies in the sample classified into four quartiles
based on sales growth.
                                 Insert Table 1 about here
Each company in the sample could move from one quartile of sales growth to another
from year to year. Mean and median of sales growth rate rise across quartiles based on
sales growth. The standard deviation sharply rises on the fourth quartile indicating
high sales growth rates are accompanied by high volatility.
         Performance measures reported are ROE, ROANI, ROAOP, net profit margin
(NPM), and operating profit margin (OPM). As expected, the performance measures
using ROE, ROANI, and NPM increases as the level of sales growth moves from the
first quartile to the third one, however it decreases in the fourth quartile. ROAOP
increases up to the second quartile and slowly decreases afterward. OPM increases all
the way from the first to the fourth quartiles. Since the sample are driven from the
condition of economic crises and recovery periods, there are many companies having
negative book value during the sample periods. ROE may not have a real meaning in
measuring profitability. Thus, the profitability measures used in the data analysis are
ROANI and ROAOP. As hypothesized, the relationship between profitability and sales
growth shows highly non linear relationship, on average, the companies in the inner
quartiles perform better.
         Variables of financial attributes provide broad pictures of firm size, operating
flexibility, and future growth potential. High correlations are found between total
assets and total sales. As shown in the Table 1, the firm size increases up to third
quartile and decreases in the fourth quartile. It resembles an inverted U-shaped across
the sales growth quartiles. Operating flexibility as measured by fixed assets/total
assets is, on average, similar across quartiles. Book-to-market and earning-price
ratios have, on average, negative values, due to many companies having negative
book value and earning during the sample periods. This phenomena is attributed to
the periods of Indonesian economic recession and recovery. The exclusion of the
negative numbers would result in a very small sample size. Therefore, earning-price
and book-market ratios rather than price-earning and market-to-book ratios are used
to maintain the meaning of these ratios. The measures of these ratios follow Fama and
French (1995) study in which they included negative book equity value companies in
forming a market portfolio. Table 1 shows that book-to-market and earning-price
ratios reach the highest value on the third quartile indicating that the highest growth



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potential occurs in the third quartile. Further growth beyond the third quartile will no
longer be optimal.
        Asset pricing parameters presented in Table 1 show measures of value
creation attributed by annualized CAPM alpha. As expected, the alpha value increases
from the first quartile to the third one and decreases on the fourth quartile. Inverted
U-shaped phenomena is also found on the relation between abnormal return and level
of sales growth. The systematic risk measured by CAPM beta are similar across
companies in each quartile.

B. Results
To further investigate the relationship between level of growth and profitability, the
formal test of regression of model I is employed. As shown in Table 2 the regression
output lends support to the analysis from the descriptive statistics.
                                 Insert Table 2 about here.
The regression of model I is estimated using ordinary least squares (OLS). Dependent
variables used are ROANI and ROAOP. The majority of estimated coefficients are
highly statistically significant. A number of diagnostic tests have been performed and
the standard OLS assumptions cannot be rejected.
         As shown in Table 2, intercept coefficient estimates are conditional mean of
either ROANI or ROAOP for companies in the first growth quartile in year 1998 (used
as a base value). The coefficients on the other quartile dummies represent the
difference of average ROA of the corresponding quartile from the base value. Given
this explanation, the coefficient of growth quartile dummies can be interpreted that
ROANI increases from Q1 to Q2, reaches the maximum on Q3, and decreases on Q4.
The coefficients of Q2, Q3, and Q4 are 4.68%, 8.22%, and 6.68%, respectively. This
result supports H1 that profitability (ROANI) increases up to a certain level of growth,
beyond that level the converse is true. In this case the optimal level of growth is on
Q3. The result cannot clearly be seen from the regression of ROAOP, because the
coefficients of growth quartile dummies are risen as moving through the higher
quartiles. The coefficients of Q2, Q3, and Q4 are 5.31%, 7.63%, and 7.95% Yet, they
still indicate diminishing marginal profitability2. Thus, an optimal level of growth
exists even though it cannot be shown by the result. The optimal level occurs some
where beyond Q4.
         To test the persistence of the result due to the possibility of some companies
moving from one quartile to another through the years, the regression of model I is
also run using persistent sample. The results are robust for both measures of
profitability.
         All controlled variables have estimated coefficient signs as expected, except
for earning-price ratio and book-to-market ratio. Earning-price (EP) and market-to-
book (BM) ratios have a positive relationship with profitability. Companies having
lower EP tend to have lower profitability. It is suspected that low (high) EP and MB
may not reflect the companies’ potential growth but they may indicate market over
(under) valuation.
         Table 3 shows the results of the regression of abnormal return using ROA NI
and ROAOP as profitability measures.
                                 Insert Table 3 about here.
Following the previous interpretations, the intercept coefficient estimate are
conditional mean of abnormal return for companies in the first growth quartile in year

2
    Marginal profitability is an increase in profitability for each level increase in sales growth.


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1998 (use as a base value). The coefficients on the other quartile dummies represent
the difference of average abnormal return of the corresponding quartile from the base
value. Using ROANI as a profitability measure, the abnormal return reaches the
maximum value on Q3. The coefficients of Q2, Q3, and Q4 are 9.51%, 23.60%, and
23.10%, respectively. Using ROAOP as a profitability measure, the coefficients of
Q2, Q3, and Q3 are 6.83%, 21.00%, and 19.70%, respectively. The decreasing
abnormal return associated with the fourth quartile of growth is again a significant
features of the results. Companies in the third quartile have the highest conditional
abnormal return for both profitability measures. Moreover, the inverted U-shaped
relationship between abnormal return and growth is similar to that of profitability and
growth. The persistent sample also shows a similar pattern. This result supports H2
that value creation increases up to a certain level of growth, beyond that level the
converse is true.
        As expected profitability ratios and measure of systematic risk have a positive
significant relationship with abnormal returns. However, firms size have no
significant relationship with value creation. The amount of value creation also varies
over times as reflected by the significant coefficients of year dummy variables. Thus,
economic conditions do have affects on profitability and value creation.
         Based on the results of the regression using ROANI as a profitability measure,
it seems that the level of growth for maximizing firm value and profitability are the
same, on Q3. However, further examinations on the profitability measured by ROAOP
could shed light on the possibility of different level of growth that maximizes
profitability and firm value. Of the regression of ROAOP, profitability still increases
through Q4, and will reach a maximum point some where beyond Q4, but the
abnormal return reaches a maximum value on Q3 (See: Table 3). The same result is
also found in the persistent sample. This result demonstrates that maximizing
accounting profitability does not necessarily enhance shareholders’ value. It is true
that accounting profitability measures generally rise with sales growth, yet an optimal
level of growth exists, beyond which further growths destroys shareholders’ value.
Therefore, this study also provides a support to the H3 that the level of growth that
maximizes firm value is lower than that of maximizing profitability.

V.Conclusions and Limitations
The empirical results of this study indicate that maximizing level of growth does not
maximize accounting profitability and value creation. On the contrary the companies
with moderate growth in sales have the highest profitability and value creation. This
empirical findings also demonstrate that the level of growth that maximize the
corporate profitability is higher that that of maximizing the value of the firm. Thus,
managers should be cautious in planning the level of future growth. The optimal level
of growth should maximize the firm value not maximizing the accounting profitability
alone.
        These results suggest that corporate managers need to abandon the habit of
blindly increasing company size, and investors need to carefully consider the
drawbacks of diseconomies of scales resulted from pushing level of growth beyond
the optimal point. The incentive schemes of compensation should not merely rely on
growth and accounting profitability measures. Value creation issues related to
company sales and asset growth in order to maximize the value of the firm should be
considered. These suggest that measures of value creation such as economic value
added, market value added should be developed and become important alternative
measures in value creation strategy.


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        The limitation of this study is the scheme of partitioning the data into quartiles
and applying OLS to identify the non linearity of the relationship between growth and
either profitability or value creation. An important question that deserves further
investigation is what additional factors can be used to discriminate among the
quartiles in an ex ante sense. Related to the OLS, another alternative such as
nonlinear and non parametric procedures may be worth to examine in the future
research.


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Table 1. Descriptive Statistics of Company Characteristics by Sales Growth Rates, 1998-2002
                                                             Quartiles of Annual Sales Growth Rates
Measures                                      All           Q1           Q2          Q3          Q4         Persistent
                                           Companies                                                        Companies
Sorting Variables
Mean sales growth rate (%)                       30.06       -2.15       19.24       34.18       65.90           32.72
Median sales growth rate (%)                     26.04       -1.23       21.32       35.04       53.43           26.83
Standard deviation of sales growth rate(%)       33.79       14.82       10.30       11.56       40.69           41.11

Performance Measures
ROE (%)                                          64.70        7.41       14.64      163.63       62.31           36.82
ROANI (%)                                         0.91       -6.29        1.09        5.06        3.10           -0.74
ROAOP (%)                                        19.27       17.95       20.17       19.85       19.05           40.00
NPM (%)                                         -12.54      -53.09       -2.41        2.69       -0.30          -24.69
OPM (%)                                           8.14       -3.80       10.48       12.23       12.76            5.58

Financial Attributes
Size (total sales, in billions rupiahs)       1,264.32     354.08     1,463.97    1,716.25    1,451.14        1,625.11
Size (total assets, in billions rupiahs)      1,693.84    1035.80     2,018.28    1,852.33    1,833.69        2,100.43
Fixed asset/Total asset                           0.41       0.43         0.40        0.41        0.41            0.41
Book-to-market ratio                             -2.02      -4.91        -1.16       -0.12       -2.13           -2.15
Earning-price ratio                              -0.78      -1.58        -0.92       -0.35       -0.37           -0.73

Asset Pricing Performance
Annualized CAPM alpha (%)                         0.27        0.09        0.23        0.38        0.37            0.30
CAPM beta                                         2.41        2.39        2.42        2.39        2.42            2.44

Sample Size                                       493         117         119          131            126           224




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