Jukka Ylitalo Resources and growth orientation as predictors of firm growth

Firm growth is one of the most utilized measures of firm performance in academic literature, and especially in entrepreneurship research it is given great importance. Resources and growth orientation are important determinants of firm growth, and thus they have been targeted by several studies. Both resources and growth orientation have strong theoretical backgrounds and have obtained empirical support as predictors of growth. However, they have generally been studied separately and only rarely within a same study. This study contributes to the existing growth literature by empirically examining the effects of resources and growth orientation on firm growth and how these factors interact with each other. Structural equation modeling was used as the main analysis method. The constructs were operationalized as a second-order factor model, where six first-order factors were used to measure two second-order factors – resources and growth orientation. Hypotheses were tested with a structural model where the growth construct was regressed on constructs for resources and growth orientation and their interaction term. Sample for this study was composed of small and medium sized Finnish software firms. The data were collected in two surveys. All independent variables were collected in 2008 and a follow-up survey was conducted in 2009 to measure the dependent variables. The results indicate that growth orientation of management has a direct, positive, and statistically significant effect on firm growth. Resources of the firm did not show a significant main effect, but they contribute to growth by positively moderating the relationship between growth orientation and realized growth. This means that more resources available, the greater impact growth orientation has on firm growth. These results have several implications for both academics and practitioners. First of all, this study contributes to the literature by providing more support for the importance of growth orientation in fostering growth. For practitioners, these results provide a guidance that if growth is a target, growth orientation of management should be the top priority. However, this does not imply that resources should be neglected, but rather that the growth orientation is the " fuel " and resources determine the effectiveness with which this " fuel " is turned into growth.