The Relationship between Corporate Profitability and Macroeconomic Indicators: Evidence from 500 Largest Industrial Organizations in Turkey

Ferhan Emir Tuncay,Hulya Cengiz

doi:10.5539/ibr.v10n9p87

Abstract

The purpose of this study is to examine the impact of chosen macroeconomic indicators on industrial corporate performance. In the analysis, economic profitability ratios of Turkey’s top 500 industrial firms, which represent the Turkish economy, have been used to estimate performance. In order to determine the effects of macroeconomic indicators, panel data with a non-linear instrumental variables estimator, Arellano Bond generalized methodology of moments (GMM) was used between the period of 2002 and 2012. As a result of the analysis, gross domestic product, inflation rate, the rate of domestic debt interest payments to the net new borrowing and the rate of domestic debt interest payments to total income tax have a direct relationship with corporate performance. On the other hand, exchange rate, interest rate and the rate of short term foreign debts to central bank international reserves have an inverse relationship.

Highlights

The performance of the economy is measured by macroeconomic indicators that are affected by various unexpected developments such as, external deficits, the growth rate of the economy, foreign trade rates, domestic interest rates, deviations in the exchange rate, inflation rate, national and international debts and an increase of oil prices
Panel data was used to estimate the effects of macroeconomic indicators that are dynamic in models containing lagged values of profitability
Macroeconomic indicators which were defined as independent variables affect the profitability of the top 500 largest industrial organizations

Summary

Introduction

The performance of the economy is measured by macroeconomic indicators that are affected by various unexpected developments such as, external deficits, the growth rate of the economy, foreign trade rates, domestic interest rates, deviations in the exchange rate, inflation rate, national and international debts and an increase of oil prices. Macroeconomic indicators may affect the microeconomic indicators such as exchange risk, credit risk, profitability rates, financial structure rates, stock prices and returns. The relationship between microeconomic and macroeconomic indicators was analysed for different periods according to development level of the countries. These studies mainly analysed the effects of macroeconomic indicators on stock prices, stock returns, the stock index in literature. Economic profitability is considered which in turn is the ratio of the net value added created by companies to their total assets.

Objectives

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Conclusion