Abstract
The aim of this study is to examine the impact of firm specific and macroeconomic factors on profitability of food sector in Pakistan. This study explores the impact of firm specific factors on profitability of companies listed in food sector ofKarachistock market in the presence of food inflation by employing multivariate regression analysis in common effect setting for the period of 2002-2006. The firm specific factors include debt to equity, tangibility, growth and size and macroeconomic factor include food inflation. Findings of study reveal the presence of significant negative relationship between size and profitability. However, tangibility, growth of the firm and food inflation are found insignificantly positively related to profitability. Similarly, an insignificant negative relationship is observed between debt to equity ratio of firm and its profitability. Empirical results provide evidence that the profitability of food sector is shaped by firm specific factors and not macroeconomic variables. One important limitation of study is that it only considers one macroeconomic factor i.e. food inflation. In future studies more macroeconomic factors will be explored to examine their impact on profitability of food sector firms. However, this study still provides significant insight about dynamics of profitability in food sector and helps in making optimal decisions of resource allocation in food sector of Pakistani equity market.
Highlights
Profitability plays an important role in the structure and development of firm because it measures the performance and success of a firm
This study explores the impact of firm specific factors on profitability of companies listed in food sector of Karachi stock market in the presence of food inflation by employing multivariate regression analysis in common effect setting for the period of 2002-2006
The objective of this study is to examine the impact of firm or industry specific/macroeconomic factors on profitability of food sector in Pakistan
Summary
Profitability plays an important role in the structure and development of firm because it measures the performance and success of a firm. It enhances the reputation of a firm. Maximizing the profits of firm is one of the main objectives of managers. The profitability of a firm is a key concern, as is the ability to better withstand negative shocks and contribute to the stability of the system. Profitability is vitally important to corporate performance, especially in competition environments. The literature predominantly considers determinants of profitability at the firm level with the mixture of variables lacking internal stability, while there is no systematic research of the impact of the macroeco-
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