Abstract
The elements determining the profitability of companies have warranted special attention over time. The levels of rising debt, increased concerns for liquidity and risks of bankruptcy have impacted the revenue of manufacturing sector companies in general and service sector companies in particular. In this study, an attempt has been made to study the financial health of companies belonging to Indian telecom industry. For this purpose, a balanced panel dataset of five Indian telecom companies listed on National Stock Exchange (NSE) has been used to examine the determinants of profitability over the period of 2004-2017. Profitability has been taken as an explained variable whereas size, leverage, liquidity, non-debt tax shield (NDTS), tangibility, growth opportunities and bankruptcy probability (Altman Z-score) have been considered as explanatory variables. The findings of the study reveal that the size and growth have a direct relationship with profitability, whereas the leverage has an inverse relationship. Tangibility, NDTS, liquidity and Z-score indicate insignificant impact on profitability.
Highlights
Telecommunications industry is one of the most profitable and rapidly developing industries in the world [1]
From the observation of the descriptive statistics, it can be concluded that profitability of telecom companies is unstable, since the standard deviation is akin to the mean
The results of F-test confirm that the fixed effects (FE) model is appropriate in explaining the determinants of profitability
Summary
Telecommunications industry is one of the most profitable and rapidly developing industries in the world [1]. Indian telecom sector is the second highest revenue earner for the Government of India (GoI) after accounting for the revenues from Income-tax collections. The sector is expected to contribute as much as 90 percent of the government’s non-tax revenue. It is one of the few sectors in India which has witnessed the most fundamental, structural and institutional reforms since 1991.
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