Not all growth is good. An analysis of Fortune Global 500 companies shows that the businesses that grew within the limits of their growth corridors performed far better than others — even those that grew faster.
What is the optimum growth rate to maximize total return to shareholders? This is a critical question facing both managers and investors. An answer is found in the concept of a company’s growth corridor, which is set by the upper bounds of a financially sustainable growth rate and the lower bounds of the competitive growth rate.
Using data from Fortune Global 500 companies, the authors find that those companies that grow within their respective growth corridor create above average total shareholder returns. Drawing examples from companies such as AES, BMW, Marks & Spencer, Nestle, and Wal-Mart, they show how managers can identify their growth corridors, and how they can restore healthy and smart growth.