DP1431 | Corporate Growth and Profitability

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This paper argues that current-period corporate growth rates reflect changes in current expectations about the long-run profitability of a firm. Using data on a balanced panel of 271 large, quoted UK firms over the period 1976?82, we report the existence of a positive, statistically significant and robust correlation between current-period growth rates and a natural measure of changes in current expectations about long-run profitability, namely changes in the stock market valuation of the firm.