The Inter - Relationship Between Profitability and Growth in Iranian Market

Owing to the attractiveness of developing economies, which seems engaging for investors, studying cardinal features of financial market of these economies seems important and necessary. The present study examines the relationship between firm s profitability and growth in Iranian manufacturing industry consisting of Tehran Stock Market listed between manufacturing firms. For the purpose of the study, firms annual data during 2005-2014 period constituted the sample of the paper. In order to understand the direction of causality between firm growth and profitability, system GMM (Generalized Method of Moments) is employed to estimate growth and profit regressions. The results obtained indicate that there is a positive bilateral relationship between profitability and growth in the case of Iranian manufacturing firms. Also, the empirical analysis finds that the positive impact of current profit (growth) on current growth (profit) is stronger than the impact of the prior s year.