Do profit margins expand for high growth firms?

Aytekin Ertan, Stefan Lewellen, Jacob K. Thomas

Research output: Contribution to journalArticlepeer-review


It is common in business analyses to invoke different efficiencies generated by scale. Growth is associated with declining average costs/sales and rising profit margins. Factors cited include the relatively fixed nature of some costs, increased bargaining power, and network effects. We investigate how different cost lines evolve for a sample of U.S. firms after their IPO. To our surprise, costs/sales do not generally decline and margins do not increase, even during the early years when growth is highest. We observe similar results for other samples of domestic and overseas firms, both public and private. We explore possible explanations for our results and discuss implications, especially for cost allocation and financial projections.

Original languageEnglish (US)
Pages (from-to)117-135
Number of pages19
JournalJournal of Management Accounting Research
Issue number3
StatePublished - Jun 1 2020

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Accounting


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