Growth paths and economic success

This chapter examines the relationship between performance and continuity of the development of companies as well as the relationship between performance and signals leading to discontinuity. Using annual data of 387 companies over a ten-year period, we show that not growth but continuity of development has a positive influence on performance. Positive signals from good financial results can lead to inertia or hubris which can have a negative influence on performance. Whilst good financial results per se in one period are a source for success in later periods, an increase of financial results in one period is negatively related to the financial performance in a later period. Moreover, companies reacting moderately to negative signals retain continuity and tend to be more successful in the future than their overreacting counterparts.