Determinants of Corporate Profitability: An Empirical Study of Indian Drugs and Pharmaceutical Industry

Abstract

This paper provides on empirical evidence about the determinants of profitability of selected companies in drugs and pharmaceutical industry in Indio. It is based on a sample of fifty firms in drugs and pharmaceutical industry drawn from PROWESS database developed by CMIE. It covers a period of ten years from 1995-6 to 2004-5. The profitability of firms has been measured in terms of overage return on capital employed. In order to study the determinants of profitability, ten explanatory variables, i.e., size (total assets), post profitability (OPR, NPR), age, advertising intensity, retention ratio, liquidity, efficiency ratios (inventory turnover ratio, debtor turnover ratio, asset turnover ratio), long term finance, market shore, and research and development intensity were chosen for empirical investigation. Multiple regression analysis was used to develop a model to identify the determinants of profitability of firms in this industry. The results revealed that age, efficiency ratio, post profitability, and research and development intensity ore statistically significant in determining the profitability of firms in drugs and pharmaceutical industry.