Determinants Of Firm Profitability Research Articles

A Schumpeterian approach to entry barrier and firm profitability: cycle time of technology

ABSTRACT Entry barrier has long been considered as a major determinant of firm profitability. Although a less competitive market structure has been commonly known as an indicator of an entry barrier, pieces of past empirical evidence are mixed. Moreover, technological factors, such as R&D intensity, have also been considered. However, no satisfactory empirical analysis has been made, mostly due to the lack of a suitable proxy variable that can reflect the technological environment of a sector. This study addresses this problem by trying a new proxy variable, cycle time of technologies (CTT), and shows, using the US firm data, that firms in a sector with a long CTT tend to enjoy higher profitability and values than others. A long CTT of a sector presents a high entry barrier against any entrant because in such sectors, an existing stock of knowledge tends to be important for a longer period of time, making new innovation continuously rely on old knowledge owned by incumbents and protected by patent rights.

Determinants of Firm Profitability in Africa

Using a large firm-level data set of 896 firms selected from 27 African countries between 2005 and 2017 and the generalized method of moments (GMM) technique, this study investigates the firm-specific, industry-level, and macroeconomic factors affecting firms’ profitability in Africa. Unlike existing studies that adopt non-standard measures of a firm’s managerial efficiency, this study introduces the standard measure of managerial efficiency into the determinants of a firm’s profitability. The empirical results show that managerial efficiency, size, age, leverage, tangibility, and firm’s growth are significant firm-level determinants of a firm’s profitability in Africa. Similarly, an industry-specific factor of competition exercises a significant effect on a firm’s profitability. However, the role of macroeconomic factors are not validated by the study. Policy recommendations follow the study.

Determinants of Profitability: Case Study of Real Estate Companies in Hochiminh Stock Exchange

This study is conducting an empirical examination on the determinants of firm profitability of real estate companies listed on HOSE from 2010 to 2018. The difference from previous studies would lie in the usage of explanatory variables, the quantity of sample and the period of study. Based on data of 34 companies with 306 observations, this research methodology applies descriptive statistics, correlation statistics and regression analysis. The empirical results revealed that firm size, asset turnover, liquidity have a significant impact on firm profitability, while firm growth showed no significant effect on profitability denoted by ROA and ROE.

Market Structure and Determinants of Firm Profitability on General Insurance Industry in Indonesia

Abstract The purpose of this study is to analyze the market structure of the general insurance industry in Indonesia and the effect of market share, operating expenses to operating income (OEOI), and debt ratio(DR) on profitability measured by return on assets (ROA). This study uses panel data regression analysis with the Chow and Hausman test to determine the best model. This analysis uses a combination of cross-section data, which consists of 11 companies, and time-series data, which consists of five years. The results showed that the Indonesian general insurance industry in 2014-2018 took the form of a tight oligopoly with a high concentration level after being analyzed through the four-firm concentration ratio (CR4) and Herfindahl-Hirschman Index (HHI). The average CR4 ratio is 84.77%, while the value of HHI is 3,374.19. Meanwhile, the results showed that based on panel data analysis, the OEOI variable has a significant negative effect on firm profitability. Also, the debt ratio variable has a significant negative effect on the profitability of general insurance firms in Indonesia. The firm efficiency can be able to increase profits rather than mastery of market share.

Determinants of Firm Profitability: Evidences from Bangladeshi Manufacturing Industry

Determinants of Firm Profitability: Evidences from Bangladeshi Manufacturing Industry

Technological capabilities and rent eroding battles: Scandinavia centric evidence on firm profitability

This paper furthers our understanding towards determinants of firm profitability using the data of listed firms from Scandinavia over the period from 2002 to 2015. Applying robust generalised method of moments (GMM) and ANCOVA techniques, we show that firm size, capital intensity, leverage, and growth are the major drivers of firm profitability in Scandinavia. A predominantly positive effect of size over profitability is in line with the broader prior evidence while a simultaneous negative capital intensity-profitability relationship is in contrast with the evidence from rest of the Europe. This contrasting effect may potentially be explained as an outcome of a suboptimal deployment of technological investments and/or rent-eroding battle among the incumbent firms operating in Scandinavia. Our results are robust to reverse causality and alternate proxies of capital intensity.

Determinants of firm profitability in the Croatian manufacturing industry: evidence from dynamic panel analysis

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.

SECTORAL AND FIRM-LEVEL DETERMINANTS OF PROFITABILITY: A MULTILEVEL APPROACH

The paper aimed to contribute to the literature on the determinants of firm profitability, from the perspective of the Czech economy. We followed a multilevel/hierarchical approach towards the analysis of the sectoral and firm-level determinants of the profitability of companies operating in the Czech food processing industry during years 2005-2012 (622 Firms in 10 Sectors). We assessed an impact of industry (i.e. market concentration, sector growth rate and growth rate of imports) and firm-level characteristics (i.e. market share, firm age, firm size, number of employees, debt/equity ratio and short-term risk) on the return on assets (ROA). Surprisingly, there were no substantial differences between the separate models for industry and firm-level determinants and a combined one. We found a positive impact of market concentration and market share and a negative effect of age and risk-taking behaviour on a firm profitability. Based on these findings, managers in the Czech food and drink industry should pay more attention to the debt policy.

The Determinants of Firm Profitability and Risk on Performance of Real Estate Company

The aim of this study is to examine the relationships between profits and risks of Frasers Centerpoint Limited. This study was carried out using the secondary data which was obtained from the annual reports of five companies in consecutive years from 2013 until 2017. Return on asset (ROA) has been as the dependent variable to study its relationship with the independent variables of firm specific risk such as Liquidity ratio, credit ratio, operational ratio, Index Score and macroeconomic factor such as, inflation rate, exchange rate and other risk factor variables. The enter method was used to obtain the correlation and regression result to observe the significance level of the risk with the profits.

Sectoral and Firm-Level Determinants of Profitability: A Multilevel Approach

Abstract The paper aimed to contribute to the literature on the determinants of firm profitability, from the perspective of the Czech economy. We followed a multilevel/hierarchical approach towards the analysis of the sectoral and firm-level determinants of the profitability of companies operating in the Czech food processing industry during years 2005-2012 (622 Firms in 10 Sectors). We assessed an impact of industry (i.e. market concentration, sector growth rate and growth rate of imports) and firm-level characteristics (i.e. market share, firm age, firm size, number of employees, debt/equity ratio and short-term risk) on the return on assets (ROA). Surprisingly, there were no substantial differences between the separate models for industry and firm-level determinants and a combined one. We found a positive impact of market concentration and market share and a negative effect of age and risk-taking behaviour on a firm profitability. Based on these findings, managers in the Czech food and drink industry should pay more attention to the debt policy.

The Determinants of Firm Profitability and Risk on Real Estate Industry

The Determinants of Firm Profitability and Risk on Real Estate Industry

Market structure and competition in transition: results from a spatial analysis

ABSTRACTThe present article provides first microlevel (indirect) empirical evidence on changes in entry barriers, the determinants of firm profitability as well as the nature of competition for a transition economy. We estimate size thresholds required to support different numbers of firms for several retail and professional service industries in a large number of geographic markets in Slovakia. The 3 time periods in the analysis (1995, 2001 and 2010) characterize different stages of the transition process. Specific emphasis is given to spatial spill-over effects between local markets. Estimation results obtained from a spatial ordered probit model suggest that entry barriers have declined considerably (except for restaurants) and that the intensity of competition has increased on average. We further find that demand spill-overs and/or the effects associated with a positive correlation in unobservable explanatory variables seem to outweigh negative spill-over effects caused by competitive forces between neighbouring cities and villages. The importance of these spatial spill-over effects differs across industries.

Determinants of Firm Profitability in Colombia's Manufacturing Sector: Exchange Rate or Structural?

Determinants of Firm Profitability in Colombia's Manufacturing Sector: Exchange Rate or Structural?

Determinants of Firm Profitability in Colombia’s Manufacturing Sector: Exchange Rate or Structural?

The appreciation of the real exchange rate over the past several years is considered one of the key drivers behind the weak performance of Colombia’s manufacturing sector in recent years. This paper examines the effects of the real exchange rate, external and domestic demand, and structural changes on firms’ profitability in Colombia’s manufacturing sector between 2000 and 2012. While export intensive companies have suffered lower profit growth with real exchange rate appreciation,we find no strong evidence that real appreciation has, on average, negatively affected the profitability of manufacturing firms; on the contrary, we find that real appreciation may have increased firms’ profitability by reducing the cost of imported inputs as Colombian manufacturing firms become more domestically oriented. At the same time, some structural changes (related to trade disruption with Venezuela and increased trade competition from China) seem to partially explain the weakness of the manufacturing sector since 2008.

Foreign Entry and Profitability of Domestic Firms: Evidence from China

Profitability provides a yardstick for judging the operational efficiency, growth, and survival of a business enterprise. This study investigates the determinants of firm profitability in the Chinese manufacturing sector, with a focus on the impact of foreign entry on the profitability of domestic firms. Our findings show an inverted-U relationship between foreign entry and the profitability of domestic firms. Furthermore, we also find that the effect of foreign entry on domestic firm profitability varies according to the ownership structure of domestic firms and the export intensity of foreign newcomers.

Family Control, Risk Management and Company Performance in Mexico

The study of the determinants of firm profitability is paramount as the main objective of a company is to maximize the present value of its profits. Corporate governance is said to reduce agency costs and help improve firm performance, an issue barely explored for the case of Mexico. Using eight different profitability measures and a unique set of data from 80 Mexican non-financial companies listed on the Mexican Stock Exchange for the period January 2001 to December 2011, we find evidence that family-managed companies are more profitable than non-family firms by as much as 4.4% per annum although this does not translate into a higher firm value necessarily. The use of derivatives for hedging purposes and an adequate management of working capital are found to contribute towards company profitability. Highly concentrated sectors, such as construction and telecommunications, seem to produce higher returns than more diffuse industries by means of market power. Our models are estimated by Feasible Generalized Least Squares.

The Determinants of Firm Profitability in Australian Manufacturing

This study provides new evidence on the determinants of the profitability of Australian manufacturing firms by analyzing a unique firm‐level data set of firm performance over the period 1984‐93. The panel nature of the data permits the estimation of dynamic profitability models over the business cycle, to test both the persistence and cyclicality of firm profitability. Econometric results suggest that lagged profitability is a significant determinant of current profit margins, and that industry concentration is positively related to firm profit margins. Also, profit margins are found to be procyciical in concentrated industries but counter‐cyclical in less concentrated industries.

Intangible capital, market share and corporate strategy

This paper theoretically and empirically identifies the determinants of firm profitability and market share for twelve broadly defined US manufacturing industry groups. The effects of advertising, research and development, and diversification on profitability and market share are econometrically tested for each industry group, and corporate strategy implications of the results are considered. One major result of the analysis is that research and development (R&D) tends to be much more effective as a means of enhancing firm profitability than advertising, and research and development spending decisions are more closely related to the profitability of R&D than advertising decisions are related to the profitability of advertising.

Risk, Leverage and Profitability: An Industry Analysis

T HIS study investigates the effect of financial leverage, or relatively greater use of debt capital, on industry profitability. Recently at least two cross-section studies have yielded the surprising result that systematically higher rates of return are earned by firms with relatively low leverage. Measuring leverage inversely as the ratio of equity to assets,' one would expect the rate of return on equity and this ratio to vary in opposite directions, lower values of equity/assets and the associated riskier bond intensive capital structures implying higher equilibrium profit rates, ceteris paribus.2 But so far the evidence has gone the other way. Fred D. Arditti (1967) calculated expected profit rates for firms as a geometric average of past rates of return and regressed this variable on the ratio of debt to equity.3 His measure of leverage appeared with a negative sign in all of his regressions. And in a paper dealing with the determinants of firm profitability, Marshall Hall and Leonard Weiss (1967) found that equity/assets, which is inversely related to leverage, had a significantly positive effect on profits on equity when market structure conditions were held constant.4 They noted, . . a possible after-the-fact explanation is that relatively profitable firms take some of the exceptional returns in the form of reduced risks. (1967, p. 328.) Thus profitability may affect leverage, and leverage may affect profitability. On grounds that the direction of causation between leverage and profitability may run in both directions, this paper develops and tests a model consisting of two equations, one explaining industry profitability in terms of the usual market structure variables plus leverage and the other a new equation incorporating risk variables to explain leverage.