A Monte Carlo simulation analysis of the effect of volatility on the rate of sustainable growth

The conceptual business life cycle literature suggests that at some stage in an entity's life a period of significant growth will be experienced. The level of growth may be slow and at a relatively constant rate, say for example from startup until the business reaches a level of trade consistent with owner(s) requirements. Some business will however, experience periods of significant growth, which may be either planned or unplanned. It is the management of this growth and the problems that growth engenders which has been the basis for much of the conceptual literature, including the stage models of growth. The model presented in this paper extends the existing growth model literature by detailing the impact of fluctuating growth rates on firm solvency, which considers the liquidity constraining conditions under which growth firms operate. The results suggest that the impact of fluctuating growth rates should be imputed into growth models which, todate, have been based on the simplified assumption of constant growth, with limited consideration of the effect of boundary constraints.