Abstract
Given that the goal of this study was to examine the influence of different factors on a firm’s profitability, we designed a model with three categories of profitability determinants: firm-specific, industry-specific and macroeconomic. The analysis was performed on 9359 firms operating in the Croatian manufacturing industry during the 2006–2015 period. Since the designed model was formulated in a way that encompasses the dynamic aspect of profitability, the General Method of Moments (G.M.M.) dynamic panel estimator was applied. Formulation of such a model adds to the existing literature if one takes into account that a dynamic analysis of the drivers of profitability has not been done using data from the Croatian manufacturing sector. The results of the conducted analysis revealed that a firm’s age, labour cost and industry concentration, as well as G.D.P. growth and inflation, have significant influence on a firm’s profitability.
Highlights
Different theories have tried to illuminate the reasons why some firms are more profitable than others, and a large amount of research has considered and explored different factors that may impact firm performance, the issue of firm profitability continues to be an actual, significant and inexhaustible phenomenon that attracts the attention of many researchers and practitioners
Based on the relevant literature and the synthesis of different theories, we proposed a model that incorporated three types of firms’ profitability determinants: firm-specific, industry-specific and macroeconomic variables
An empirical estimation of the model was based on firms operating in the Croatian manufacturing industry during the 2006–2015 period
Summary
Different theories have tried to illuminate the reasons why some firms are more profitable than others, and a large amount of research has considered and explored different factors that may impact firm performance, the issue of firm profitability continues to be an actual, significant and inexhaustible phenomenon that attracts the attention of many researchers and practitioners. In the present context of market liberalisation, globalisation and increased competition, the examination of the determinants that are relevant and significant in explaining firms’ business success becomes crucial. Having in the above in mind, the aim of this research is to create a model that will identify factors that determine a firm’s success. In order to accomplish the aim, we designed three categories of a firm’s profitability determinants. The first category, firm-specific determinants, encompasses different firm characteristics such as the firm’s age, liquidity and labour costs. The second category of determinants embodies industry-specific determinants that capture the market structure within which firms
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