An analysis of factors affecting the profits of new firms in Spain: Evidence from the food industry

Abstract

Using the logistic model, this article investigates the influence of financial factors on gaining profits for new firms in the Spanish food industry. Specifically, the firms founded separately during the crisis period and during the postcrisis period are observed for their first three years. The findings suggest that indebtedness (for both periods), previous profitability (for the postcrisis period) and accounts payable (for the crisis period) were most frequently statistically significant in the logistic model. Hence, for new firms, controlling debt burden, accumulating internally generated funds and using payables to establish business relationships can help to gain profits. Firm size and asset rotation were significant in the first year (especially during the postcrisis period), with a positive relationship to profits. Given that the food industry is highly competitive, enlarging firm size to reach efficiencies of scale and using a low-price strategy with high asset rotation to obtain market share are effective marketing strategies for new firms. This article contributes to the empirical studies about the financial effects on new firms' profits in the food industry; it can also help potential entrepreneurs make better decisions about starting new businesses and help to manage new firms better in different macroeconomic environments.