Firm-Specific, Macroeconomic and Institutional Determinants of Stochastic Uncertain Firm Growth

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https://doi.org/10.3390/risks13100183

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Tarek Eldomiaty Islam Abdel Azim Azzam Hoda El Kolaly Marina Apaydin Monica William

Document Type

Research Article

Publication Title

Risks

Publication Date

10-1-2025

doi

10.3390/risks13100183

Abstract

This study distinguishes between observed, uncertain, and stochastic uncertain firm growth. Observed firm growth is measured via historical growth of fixed assets scaled by growth of sales revenue. Uncertain firm growth is the volatility of unobserved (estimated error terms) firm growth. The latter is simulated using nonuniform Monte Carlo to generate stochastic uncertain firm growth. The objective of this study is to examine the relationships among the firm specific, economic, and institutional factors that affect the uncertain and stochastic uncertain growth of a firm. The sample includes the nonfinancial firms listed in the DJIA30 and NASDAQ100, covering quarterly data from 1996Q1 to 2022Q4 for 121 companies. The results reveal that (a) sales growth, profitability, cash flow, and long-term financing help reduce a firm’s uncertain growth, (b) high involvement in exporting exposes firms to higher geopolitical uncertainty, (c) institutional quality (especially political stability and regulatory quality) paradoxically contribute to uncertain firm growth. This study contributes to related studies via offering perspectives to firm managers and policy makers about the factors that help manage the uncertainties of firm growth.

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