Well, those are sort of Platonic ideals. In reality, you have a situation where the company has to decide how much of its profit to spend internally, and how much to return to its owners, and there's a whole range of choices rather than two possible points like that. In fact, you can even go further off the ends of the scale than those two positions. Start-ups routinely not only reinvest every dollar they receive but seek outside investment too, and in theory there's no reason a declining company couldn't just give up, sell all its capital assets and declare one big, final dividend. The latter seldom happens in practice, of course, even if it might be for the best; human organizations seem to have a built-in bias for self-perpetuation even at the expense of their original purpose.
Realistically, I think the typical life cycle of a business goes like this:
1.) The Start-Up Phase: a few people with an idea create a company; they need to persuade some investor that their idea is a good one, etc. The company typically isn't profitable yet, but if it's successful it sees revenue growth and goes through several rounds of venture capital, maybe eventually an IPO. At this point, it's small but growing, and mostly under the control of people who understand it fairly well, and who are working hard to make their idea reality and are thus quite committed to its success.
At this point, everything the company makes is reinvested, and it also seeks outside investment regularly. It's still flexible enough to tweak its underlying structure and ideas to try to fit a niche. Eventually, either it finds that niche and starts growing, or doesn't and fails.
2.) Maturity: the former startup has found its niche and grown to the natural limits of that market. It's a lot bigger and maybe not very flexible any more, and possibly the people managing are no longer its founders, but it figured out how to do something some customers somewhere value well enough to survive, and it regularly makes a profit, and sometimes still manages to do something new and clever and find new growth. However, it's near the natural limits of its premises, and it's starting to accumulate internal inefficiencies, and if the larger conditions change such that its current strategy is no longer well-adapted, it might be rather slow to recognize that and have difficulty adjusting.
This is probably where the possibility of pro-growth bias starts to creep in. Suppose that overall real economic growth is 2% per year; if reinvesting a marginal dollar of profit into the mature company will yield an annualized return of 1%, then management should not make this investment. They should pass that dollar back to the stockholders so they can invest it somewhere else and get more. They probably won't do that, though. If they keep it, they're still managing a company that's a bit bigger than it was, and so they might see bigger salaries, more prestige, and so on. This sort of situation is a conflict of interest between ownership and management inherent in the corporate form of organization.
But, notice that even a sole proprietorship might make the same mistake: the owner/manager there knows lots and lots about her business, and is probably confident in it and doesn't want to believe it has reached its natural limits, whereas she knows far less and is less prone to have favorable biases about investments in someone else's business.
3.) Decline: eventually, the conditions which supported the business change. Its product becomes obsolete or its input costs shift or consumer tastes shift. It tries to adapt, but it's large and has entrenched internal interests and factions who will resist changes that disadvantage them. Maybe it manages to halt the decline and even find a new strategy which allows growth, but often it won't. Relatively few organizations evade this; look at the Dow Jones component stocks today vs. the ones in 1910 and see how much they have in common.
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Realistically, I think the typical life cycle of a business goes like this:
1.) The Start-Up Phase: a few people with an idea create a company; they need to persuade some investor that their idea is a good one, etc. The company typically isn't profitable yet, but if it's successful it sees revenue growth and goes through several rounds of venture capital, maybe eventually an IPO. At this point, it's small but growing, and mostly under the control of people who understand it fairly well, and who are working hard to make their idea reality and are thus quite committed to its success.
At this point, everything the company makes is reinvested, and it also seeks outside investment regularly. It's still flexible enough to tweak its underlying structure and ideas to try to fit a niche. Eventually, either it finds that niche and starts growing, or doesn't and fails.
2.) Maturity: the former startup has found its niche and grown to the natural limits of that market. It's a lot bigger and maybe not very flexible any more, and possibly the people managing are no longer its founders, but it figured out how to do something some customers somewhere value well enough to survive, and it regularly makes a profit, and sometimes still manages to do something new and clever and find new growth. However, it's near the natural limits of its premises, and it's starting to accumulate internal inefficiencies, and if the larger conditions change such that its current strategy is no longer well-adapted, it might be rather slow to recognize that and have difficulty adjusting.
This is probably where the possibility of pro-growth bias starts to creep in. Suppose that overall real economic growth is 2% per year; if reinvesting a marginal dollar of profit into the mature company will yield an annualized return of 1%, then management should not make this investment. They should pass that dollar back to the stockholders so they can invest it somewhere else and get more. They probably won't do that, though. If they keep it, they're still managing a company that's a bit bigger than it was, and so they might see bigger salaries, more prestige, and so on. This sort of situation is a conflict of interest between ownership and management inherent in the corporate form of organization.
But, notice that even a sole proprietorship might make the same mistake: the owner/manager there knows lots and lots about her business, and is probably confident in it and doesn't want to believe it has reached its natural limits, whereas she knows far less and is less prone to have favorable biases about investments in someone else's business.
3.) Decline: eventually, the conditions which supported the business change. Its product becomes obsolete or its input costs shift or consumer tastes shift. It tries to adapt, but it's large and has entrenched internal interests and factions who will resist changes that disadvantage them. Maybe it manages to halt the decline and even find a new strategy which allows growth, but often it won't. Relatively few organizations evade this; look at the Dow Jones component stocks today vs. the ones in 1910 and see how much they have in common.