The growth–profitability relationship in young firms: The role of R&D intensity and economic crises

Despite extensive research on the growth—profitability relationship, theoretical discrepancies and empirical inconsistencies remain. In this study, we adopt an uncertainty-based perspective to investigate the conditions under which young firms experience profitable growth. We propose two uncertainty-related boundary conditions: internal R&D intensity and external economic crises. Drawing on a unique longitudinal dataset of 5,884 observations of 1,375 Spanish firms over 25 years, we employ a two-step system generalized method of moments model to test our hypotheses. The results show that growth positively impacts profitability in young firms but that this relationship is contingent on internal R&D investments and economic crises. Specifically, growth enhances profitability when such investments are high and during periods of crisis. These findings highlight the importance of both strategic internal investments and external economic conditions in shaping how young firms navigate uncertainty.