Discussion Paper, Turkish Economic Association 2011/2
The view that profitability, not growth, is the driving force behind the firm performance, and unprofitable high growth can not lead to financial success has often been discussed in the literature. In this study, I tested this hypothesis on Turkeys top 1000 data using an extended version of the method of Davidson et al. (2009). My sample strongly supports the hypothesis that controlling for leverage, low growth-high profitability (profit) firms outperform high growth-low profitability (growth) firms regarding both directions of their transition to an upper state and a lower state in subsequent periods. The hypothesis that controlling for type of firm (growth or profit firm), leverage matters with respect to firms future performance is weakly supported by 3-year transition data.