Impact of firm specific and macroeconomic variables on firm growth: Evidence from Nepal

This paper examines the impact of firm specific and macroeconomic variables on firm growth using panel data analysis of 333 observations from 37 firms for the period of 2003/04 to 2011/12. Sales growth and assets growth are selected as the indicator of firm growth. The result shows that there is a significant negative impact of firm age on sales growth. The result further confirms thatassets growth in the Nepali firm is positively and significantly affected by shareholders ’equity, leverage, firm size and liquidity whereas, negatively affected by firm age and cash flow. Among the macroeconomic variables, GDP growth and money supply have the significant positive impact on sales growth. However, real interest rate has the significant negative impact on sales growth of the firm. Regarding the assets growth, the variable inflation has significant positive impact and real interest rate has significant negative impact on assets growth in the Nepali firms. Moreover, Lang, Ofck and Stulz (1996) have examined the relationship between leverage and growth and concluded that the strong negative relationship and further confirmed that higher leverage increases the threat of bankruptcy and hence forces managers to improve efficiency. All the contradictory debates create an issue on how the traditional firm specific characteristics affect on firm growth in the underdeveloped and unstructured economy like Nepal. The overall research methodology used in the study. Similarly, section three deals with the results. Finally, section four presents summary, discussions, implications and critiquing of the study.