Firm Profitability Research Articles

The Effect of Profitability, Liquidity and Company Size on Capital Structure in Companies Listed on the Indonesian Stock Exchange

This study investigates the effect of profitability, liquidity, and firm size on the capital structure of firms listed on the Indonesia Stock Exchange (IDX). Using data from manufacturing firms, the study found that profitability and liquidity have a negative and significant influence on capital structure decisions, with more profitable firms tending to rely on less debt and more internal sources of funds. However, firm size does not consistently have a significant negative impact on capital structure, suggesting that external factors such as capital market conditions and economic policies have a more dominant role in determining a firm's capital structure. These results provide important insights for financial practitioners in designing appropriate funding strategies to maximise firm value and effectively manage financial risk in the Indonesian capital market.

Discovering the determinants of energy intensity of Indian manufacturing firms: a panel data approach

Our study pores on evaluating the impact of firm specific and macro level determinants of energy intensity of Indian firms belonging to manufacturing and power sector. We collect a panel dataset of 3316 firms for 10 years ranging from 2010 to 2020. We employ the advanced biased corrected method of moments estimator and the quantile regression estimator for panel data models for our empirical analysis. We find that poor labor efficiency is largely responsible for increasing energy intensity of the sample firms. Energy intensity can be optimized by investing in better plant and machinery. Moreover, machineries that require frequent repairs and maintenance need to be replaced with latest tools. While larger firms are found to be energy intensive, profitable firms are found to be in a better position to enhance their energy efficiency. Under macroeconomic scenario, GDP growth and trade openness lead to boosting up the energy consumption at the firm level whereas, the global energy prices act as a constraint and necessitate careful use of energy. Based on our findings we provide certain policy recommendations and suggestions in order to limit energy intensity and enhance energy efficiency of the Indian manufacturing firms.

Global efficiency and profitability: Cooperatives as social innovation agents vs. Joint stock companies in the agri-food sector

Cooperativism, as an agent of social innovation, significantly contributes to fostering a dynamic economy and plays a fundamental role in rural areas. Analyses of profitability in cooperatives versus Investor-Owned Firms (IOFs) show disparate results depending on the methodology and indicators used. This disparity of results is largely due to the fact that common indicators are used in the business sphere that do not take into account the duality of investor-supplier members in cooperatives. This paper deals with a comparative analysis of the efficiency and profitability of cooperatives and IOFs, which takes into account the cooperative specificity as far as partner-producer duality is concerned. The populations analyzed are the olive oil producing companies in Andalusia and the methodology used is twofold: DEA, in the case of efficiency, and probit regression for the analysis of profitability. For the latter, a cooperative global profitability indicator has been defined. The results point to a superiority of the cooperatives in terms of both efficiency and overall profitability compared to the IOFs, which denotes a greater capacity to better remunerate the producer, especially in smaller companies. However, this superiority disappears as the cooperative gains dimension. Our findings show that the relative performance of cooperatives and IOFs varies by size. This reality warrants the attention of both society and governments, prompting the need for the development and implementation of public policies aimed at their growth and safeguarding. Additionally, it initiates a pathway for further research into other sectors of activity.

Earnings Management Mechanisms and Firm Profitability: A Comparison Study

Earnings Management Mechanisms and Firm Profitability: A Comparison Study

Optimal Markup Pricing Strategies in a Green Supply Chain under Different Power Structures

Fixed-dollar and flexible markups are two markup pricing strategies commonly adopted in the retail industry, but their impacts on green behaviors of enterprises remain unknown. This paper investigates how the two markup pricing strategies influence firms’ managerial behaviors in a green supply chain, considering three power structures: Manufacturer Stackelberg, Retailer Stackelberg, and Vertical Nash. We find that the retailer’s pricing strategy choice is jointly affected by power structures and consumer sensitivity to product green levels. Particularly under Manufacturer Stackelberg, the fixed-markup strategy makes the retailer earn a higher profit. However, under Vertical Nash, the retailer’s pricing strategy depends on consumer sensitivity to green levels. When consumers are less sensitive to green levels, a flexible-dollar markup strategy is more profitable for the retailer; otherwise, the fixed-markup strategy is better. Additionally, for the manufacturer, the green levels of the product and the firm profit are always higher when the retailer adopts a fixed-dollar markup strategy under Manufacturer Stackelberg and Vertical Nash. Interestingly, if the retailer adopts a flexible-dollar markup strategy, the manufacturer has the “late-mover advantage” only when consumer sensitivity to the green level is high. Furthermore, the supply chain achieves the highest profit when the manufacturer acts as the leader under the fixed markup strategy.

THE RELATIONSHIP BETWEEN INNOVATION ACTIVITIES AND PROFITABILITY OF BIST MANUFACTURING COMPANIES

This study's purpose is to analyze the connection between innovation activites and profitability of companies trading in the manufacturing industry on the Istanbul Stock Exchange. For this purpose, data from independently audited financial and income statements of 45 manufacturing companies with R&D expenditures during 2008-2021 are analyzed using the panel data. According to the examination's findings, there is an important and advantageous connection between business innovation activities and firm profitability. To conclude, the results of research examining the connection between innovation activity and profitability have both micro and macro implications. On a micro level, the solution assists firms in gaining a competitive advantage by ensuring that existing production systems operate effectively and increasing their share. At the macro level, they improve the welfare of society and help promote long-term economic growth and the accumulation of knowledge, especially the effective and cost-effective utilization of national resources.

Robots and the rise of European superstar firms

We study how a recent digital automation technology—industrial robots—is associated with the distribution of sales, productivity, markups, and profits within industries. Our empirical analysis combines data on the industry-level stock of industrial robots with firms' balance sheet data for six European countries from 2004 to 2013. We find that industries with high robot exposure are characterized by dis-proportional increases in productivity in those firms that are already most productive to begin with. Those firms are able to increase their markups and overall profits, while less profitable firms within the same industry, country and year tend to see declining markups and profits. We also find that variation in robot exposure across industries is correlated with declining labor income shares, mainly through adjustments within firms that are initially large, productive and have low labor cost-to -sales ratios. In sum, our paper suggests that European manufacturing industries with higher robot adoption rates experience a stronger emergence of superstar firms and more pronounced shifts of the functional income distribution away from wages and towards profits.

OPERATING RISK AND FIRM’S PROFITABILITY: EVIDENCE FROM NON-LISTED MANUFACTURING FIRMS FROM V4 COUN-TRIES

Purpose. This study contributes to the ongoing debate on determinants of firms’ resilience strategies while facing a crisis, by referring to the operating risk. The purpose of our work is to examine the effects of operating risk on profitability of non-listed firms in manufacturing sector. Therefore, our study responds to the literature gap within investigating this problem at sector level, and among smaller firms. Methodology. Our evidence is based on accounting-based data, covering four countries (Poland, Czechia, Slovakia and Hungary) and large number of non-listed firms. We apply WLS (Weighted Last Squared) regression to test two models of the impacts of operating risk on firm’s profitability. Findings. Our results indicate that firms exposed to higher operating risk, tend to be less profitable. While considering cross-effects of operating and financial risk in our model, we found strong and sound evidence that the interplay between operating and financial risk exposure exerts a negative impact on firm’s profitability. These results have important implications, by demonstrating that during the period of crisis firms need equity financing to sustain resilience.

Factors that Can Support and Influence the Financial Performance and Value of Go-Public Companies in Indonesia

Introduction: The company's brand equity is one of the important factors to increase the company's cash flow in the future. This study aims to analyze the effect of brand equity on cash flow, the effect of brand equity on capital structure, the effect of cash flow on firm value, and capital structure on firm value. Literature Review: Research by Mendoza, (2017), Skalický, (2016), Sivric et al (2019), Guentherb and Guentherb (2019) state brand equity has a direct relationship with capital structure. Singh and Bansal (2016) examined the impact of financial leverage on firm profitability and firm value. Method: The data analysis method used in this study uses the PLS model and data processing using the WarpPLS (Partial Least Square) program. The study used a sample of consumption subsector companies listed on the Indonesia Stock Exchange in 2015-2019 and met the requirements for calculating the brand value of the Hirose method (2002). Results and Discussion: brand equity has a significant effect on cash flow; brand equity has a significant effect on capital structure, cash flow has an insignificant effect on firm value, capital structure has a significant effect on value. Conclusion: The findings of increasing brand equity have an influence on the company's cash flow which is characterized by an increase in NCFOSA and a decrease in the company's FLD. Increasing brand equity has an impact on capital structure. Changes in cash flow have no effect on firm value. Increased debt in the capital structure has an impact on firm value.

Evolution of technology investment and development of robotaxi services

Using artificial intelligence and autonomous driving technologies, robotaxis are expected to provide more intelligent, efficient, sustainable, and convenient services as technology advances and market penetration increases. This requires attention to technology investment and market competition at the different stages of robotaxi development. This study aims to reveal the changing rules of R&D investment and market competition for robotaxi services at various stages, considering subsidies, passenger preferences (i.e. walking aversion, safety, additional convenience), and the volatility of benefits from congestion reduction. We developed models to capture the competition between robotaxis and traditional taxis in the three phases of market development — namely, introduction, development, and dominance. The results of this study show that the optimal level of R&D investment is affected by factors such as R&D subsidies, passenger preferences, and the volatility of congestion reduction benefits and that it decreases during the development phase and may further decline during the dominance phase. Additionally, government R&D subsidies should be maintained at a reasonable level to avoid potential strategic conflicts with companies in technology investment and adoption of robotaxi services during the introduction phase. The transition from R&D subsidies to usage subsidies will depend on reaching the perceived safety threshold for robotaxi services. Reducing congestion can play a role similar to the deployment of usage subsidies to promote robotaxi services during the development phase, and can promote R&D investment, robotaxi services, and firm profits in the dominance phase. However, these benefits may be reduced by the volatility of congestion reduction. Policy recommendations and strategies are provided to promote future technological progress and market competition.

Challenges for the development of sustainable SMEs in the cement industry: a SWARA–WASPAS approach

Purpose This study aims to examine the obstacles and approaches to achieving sustainable development in India’s cement solid and hollow brick production business, with a specific emphasis on incorporating the triple bottom line (TBL) concept into strategies for small and medium-sized enterprises (SMEs). Design/methodology/approach Using the step-wise weight assessment ratio analysis (SWARA)–weighted aggregated sum product assessment (WASPAS) approach, the study prioritized 11 economic, 9 environmental and 14 social sustainability indicators based on information collected from literature and expert opinions. Findings The study provides valuable insights into the difficulties encountered by SMEs while implementing strategies that focus on the TBL. By putting emphasis on the sustainability criteria, the key areas that require attention to promote sustainability get identified and addressed. Research limitations/implications The study’s focus on SMEs in this industry limits its generalizability. To have a more complete picture, future studies may include many areas. Practical implications The identified and prioritised sustainability characteristics help small and medium-sized firms (SMEs) design strategies to address sustainable development concerns. The research findings could also inform policymakers and regulatory bodies about the challenges faced by SMEs in the cement and brick production sector regarding sustainability. It could highlight the need for supportive policies and regulations to promote sustainable practices and incentivize SMEs to adopt the TBL approach. The paper can offer practical insights for SME owners and managers on integrating sustainability principles into their business strategies. Actionable recommendations and best practices for enhancing environmental performance, social impact and economic viability within the context of cement and brick production are outlined. Social implications TBL policies improve the sustainability and profitability of small and medium-sized firms (SMEs) and promote environmentally and socially responsible practices that benefit the industry and society. The research paper may facilitate greater engagement and collaboration among various stakeholders involved in the cement and brick production industry, including SMEs, larger corporations, government agencies, non-governmental organizations (NGOs) and local communities. This cooperative approach can encourage open communication, the establishment of trust and coordinated actions to tackle sustainability challenges, ultimately improving social cohesion and collaboration. Originality/value This study provides new and valuable insights by investigating the development of TBL strategies in SMEs in the cement solid and hollow brick manufacturing sector in India. The utilization of the SWARA–WASPAS technique brings novelty to research on sustainable development in this field.

Financial Fragility and Public Social Spending: Unraveling the Endogenous Nexus

This article provides both stylized facts and estimations of the endogenous nexus of the financial fragility hypothesis (FFH) with public social spending (PSS) for a paradigmatic Eurozone member country. The sample period 1995–2022 includes three major economic crises, the global financial crisis 2007–2009, the European debt crisis 2010–2015 and the COVID-19 pandemic one in 2020–2022. Within the context of the financialization literature, this paper is founded, for the first time, as far as we know, on the “financial fragility hypothesis”, combining the effects of both Minsky’s “financial instability”, as it has been extended for open economies, and the “Eurozone fragility one”. Similar to the relevant literature, the findings show that the PSS is associated, in a long-term steady state (cointegration), with the financial fragility process, starting, firstly, from the hedge-financing structure with high profitability of firms, when PSS decreases; secondly, to hyper-speculative financing with risky options, supported by bank credit and openness, indebtedness or discretionary fiscal policy, when PSS rises; thirdly, to the hyper-speculative or even Ponzi financing structures with over-indebtedness (leverage) from the global capital market, inflated asset prices and internationalized fragility, when PSS also rises, and so on. Our conclusion validates Minsky’s famous saying, “stability breeds instability”, also in the architecturally incomplete Eurozone. Policy implications are straightforward and discussed.

Recycling Cost formation and Profitability of foods and beverages firm: Evidence from Flour Milling Industries of Nigeria Plc (1991-2021)

Recycling is one of the most viable options to reuse the end of the product in the closed-loop supply chains (CLSC) management. The major focus of this study is to examine the influence of product recycling cost on the profitability of food and beverage firms. This study relied solely on secondary data sourced which was subjected to a mathematical model using regression analysis. It was observed that dependent and the independent variables has a strong positive relationship with r=0.741. The coefficient of determination r2=0.549 shows that 54.9% of the variation in profit can be explained by production cost at 95% level of significant while in the flour mills Nigeria plc, the dependent and the independent variables has a weak positive relationship with r=0.363. The coefficient of determination r2=0.132 shows that 13.2% of the variation in profit can be explained by the production cost at 95% level of significant. Finally in Dangote Nigeria plc, dependent and the independent variables has a weak positive relationship with r=0.174. The coefficient of determination r2=0.030 Shows that 03.0% of the variation in profit can be explained by the production cost at 95% level of significant.

ESG factors in M&A in India: Performance and market insights from 2010 to 2023

This study assesses the impact of mergers and acquisitions on Environmental, Social, and Governance (ESG) performance and market value of acquiring companies operating in India. Data were collected and analyzed from 69 M&A announcements from January 2010 to June 2023, sourced from the Bloomberg database. The analysis reveals a positive correlation between the post-merger market value of acquiring firms and their ESG performance, indicating that an improvement in ESG factors is associated with increased market value after mergers. Additionally, a positive correlation was identified between acquiring companies’ post-merger ESG performance and their target firms’ pre-merger ESG performance. This finding suggests that when acquiring a target firm with high ESG performance, the acquirer is likely to experience an improvement in its own post-merger ESG performance. Moreover, both the post-merger market value and ESG performance of the acquirer are likely to improve with the profitability and size of firms but will have a negative impact based on the leverage components of the acquiring firms. 

Dynamics in the asymmetric effects of job attributes on employee satisfaction: A mixed-method approach using big data

Given its direct influence on customer satisfaction and firm profitability, employee satisfaction has attracted much attention from scholars in the hospitality industry. However, the moderating variables that shape the asymmetric relationship between job attributes and employee satisfaction remain largely unexplored. We aim to fill this gap by considering the influence of employee position and organizational tenure on the relationship. We reveal the asymmetric relationships between employee satisfaction and various job attributes by performing an impact-asymmetry analysis and using a hybrid approach that integrates the big textual data from online reviews written by employees. Our results highlight some differences between managers and non-managers, with the former giving priority to organizational culture and work environment and the latter setting high expectations on employee benefits. These results also underscore the dynamic effect of organizational tenure on the aforementioned asymmetric relationships. Our empirical findings can guide managers in the hospitality industry in designing targeted strategies that can effectively maximize the satisfaction of their employees.

A structured investigation on the site supervisory traits in applying science and technology related fundamental concepts in construction operations

Purpose Productivity increase is correlated with profitability, sustainability and competitiveness of the construction firms. Recent studies reveal that the primary causes of productivity decline are poor usage of scientific and technological advances, ineffective supervision strategies and poor apprenticeship facilities/opportunities. Accordingly, the purpose of this study was to evaluate how well construction supervisors can utilise fundamental science and technological concepts/ideas to increase the efficiency and productivity of construction activities. Design/methodology/approach A new strategic layout was designed with the use of potential training guide tools. Based on the designed layout, a new supervisory training programme was developed, and 62 construction supervisors were selected, trained and evaluated in line with six parts of competencies and the relevant learning domains. An assessment guide with different levels of descriptions and criteria was developed through literature analysis and expert interviews. The research tools were verified using comprehensive approaches. Findings The overall mean values of supervisors’ performance scores indicate proficient-level grades in the competency characteristics related to taking measurements, generating drawings/designs using manual techniques and computer-aided tools, involving Bill of Quantities (BOQ) preparations and preparing training plans/materials for improving the competencies of labourers on estimation, measurements and understanding drawings. Their proficiency was notably lower in the use of information and communication technology application tools in construction tasks compared to others. The findings point to a modern generalised guideline that establishes the ranges of supervisory attributes associated with science and technology-related applications. Research limitations/implications The study outcomes produce conceptualised projections to restructure and revalue the job functions of various working categories by adding new definitions within the specified scope. This may result in constructive benefits to upgrading the current functions associated with urbanisation, sustainability and society. The implementation of the study’s findings/conclusions will have a significant impact on present and future practices in other developing nations and developing industries, even if they are directly applicable to the Sri Lankan construction industry. Originality/value Up to certain limits/stages, the study fills not only the knowledge gap in the field of creating protocols and application techniques connected to lifelong learning and skill enhancement/upgrading but also the existing gaps in work attributes and roles of construction supervisors associated with the utilisation of fundamental science and technological concepts/ideas towards reinforcing sustainable and productive site operations.

A Study on Working Capital Management in Automotive chassis Manufacturing Pvt Ltd

The effective management of working capital is crucial for all companies. Key elements of working capital management include days sales outstanding (DSO), days inventory outstanding (DIO), days payable outstanding (DPO), and cash conversion cycle (CCC). A study conducted on 332 Czech companies, 20 of which were certified by the EFQM (European Foundation for Quality Management) Model, investigated how these components of working capital management impact a company's profitability. Two regression models were utilized for testing - pooled regression and maximum likelihood estimation (MLE). The results indicated that all components of working capital management have a negative effect on profitability. Interestingly, the interaction between EFQM certified companies and working capital components had a positive impact on profitability, suggesting a beneficial relationship between these components and profitability for certified firms. However, it was found that receiving a quality certificate/award from the EFQM Excellence Model actually decreased a company's profitability. Keywords Working capital, Firm profitability CCC, EFQM, Czech firms

Do corporate hedge theories explain the natural hedge strategies of firms? A meta-analytic review

This meta-analysis of 54 empirical studies examines the determinants of natural hedging. Our findings reveal that firm's risk exposure, economies of scale, and strategic considerations prompt natural hedge. Financial distress and underinvestment theory also partially explain the preference for natural hedge; however, their effect's economic relevance is low. Factors influencing natural hedging differ across geographical regions and impact the choice of natural hedging strategies. For instance, highly profitable firms prefer foreign debt, whereas highly leveraged firms prefer operational modifications as natural hedge strategy. Data sources, model specifications, econometric methods, and journal rankings further explain heterogeneity in effect sizes across studies.

Entrepreneurial Creative Thinking and Venture Performance: Reviewing the Influence of Psychomotor Education on the Profitability of Small and Medium Scale Firms in Port Harcourt Metropolis

The significance of small and medium enterprises to an economic development of a country cannot be overemphasized. The growth of a business depends on the development of abilities needed to execute a smooth running of day business activities. Research has established the fact that fast economic growth of regions lies on the extent of trade activities in the area. Given this established importance of enterprise, this present study aims at empirically developing the relationship between entrepreneurial creative thinking and venture performance with specific reference to small and medium scale firms in Port Harcourt metropolis. Descriptive survey design was adopted and primary data were used. The data collected were analyzed using mean, aggregate mean, and Spearman rank correlation with the aid of statistical package for social sciences, version 25. Findings shows that there is a significant and positive relationship between psychomotor education (our proxy for creative thinking) and profitability, as indicated by p-value of at 0.05 level of significance. We conclude that entrepreneurial creative thinking is an ingredient that managers of small and medium enterprises deploy to achieve maximum profit. Based on the empirical findings and conclusion, we recommend that there should be a need for policymakers to consider developing small and medium enterprises, not only through the provision of social amenities but also development of public agenda for the acknowledgement of creative thinking, skill development, and prioritization of skills improvement for both expert and non-expert business owners.

Generic technology R&D decision with technology spillover, cost difference, and bargaining power under oligopoly competition

ABSTRACT This study constructs an oligopoly model considering generic technology R&D, analyzes the market equilibrium results under R&D cooperation and non-cooperation, explores the impacts of technology spillover, cost difference, and firm’s bargaining power, and compares the boundary conditions between R&D cooperation and non-cooperation. The results show that when the degree of technology spillover is small, the R&D firm conducts drastic R&D, resulting in a complete monopoly. The market structure and equilibrium results are influenced by the degree of technology spillover, cost difference, bargaining power, and the number of following firms. Cooperation in R&D can be considered as a Nash equilibrium in certain cases. Compared with R&D non-cooperation, R&D cooperation can lead to higher profits for firms. When the degree of technology spillover is large and the number of following firms is small, R&D cooperation yields greater consumer surplus and social welfare.