Dijana Močnik, Karin Širec


The paper seeks to explain the relationship between a firm’s profitability and firm size, leverage ratio and labor costs—using a sample of 782 Slovenian fast-growing firms from the years 2008 and 2009. We determined that profitability is negatively related with the firm size and leverage ratio, but positively with the labor costs. These results illustrate that, with increasing firm size, a fast-growing firm becomes less profitable. The negative coefficient for the leverage ratio indicates that the higher the extent to which debts were used as the source of financing, the lower the profits. One explanation for this is that profitable, fast-growing firms rely on their equity capital. Alternatively, higher-leveraged firms bear greater risks of bankruptcy; consequently, creditors are reluctant to approve credit for such clients. The positive association between labor costs and profitability implies that the higher the labor cost, the higher the profitability of fast-growing firms.

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fast-growing firms; entrepreneurship; profitability; firm size; leverage ratio; labor costs

JEL Codes

L21 - Business Objectives of the Firm; L25 - Firm Performance: Size, Diversific


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