Firm Profitability Research Articles

ESG investing and the performance of JSE-listed real estate firms: a system GMM approach

PurposeThis study aims to examine environmental, social and governance (ESG) investing and its impact on the performance of Johannesburg Stock Exchange (JSE)-listed real estate firms.Design/methodology/approachThe study applies the two-step generalised method of moments framework to estimate the parameters of our regression model. Data on ESG scores and financial performance were collected from Bloomberg and Refinitiv Eikon, respectively, while data on macroeconomic factors were collected from the World Bank DataBank. The data collected were for the period of 2013–2022.FindingsThe study reveals that composite ESG has a negative and significant impact on firm value as measured by Tobin’s Q. Social sustainability, on the other hand, had a significant and positive impact on both the return on equity and Tobin’s Q. Governance had a positive impact on return on assets, whereas environmental sustainability did not have a significant impact on either firm profitability or firm value.Practical implicationsThe results reveal that the sustainable scores of real estate firms have a positive association with the performance of listed real estate firms in South Africa and therefore, these firms should continue to pay greater attention to ESG investment during their investment decision-making.Originality/valueTo the best of the authors’ knowledge, this study is the first of its kind to examine ESG investment and the performance of JSE-listed real estate firms using ESG data from Bloomberg. The study is expected to increase ESG investment understanding and interest in the property sector of South Africa.

Adoption of E-Procurement and Its Effects on Firm Performance in Ghana's Construction Sector

Purpose: This study investigates the impact of e-procurement adoption on firm performance in Ghana’s construction sector, with a focus on procurement transparency, cost reductions, and operational efficiency. Methodology: A mixed-method approach was adopted, with data collected from 60 procurement officers and project managers in Accra. Findings: The study reveals a significant positive correlation between e-procurement usage and firm profitability (mean = 3.59) and competitiveness (mean = 4.00). Quantitative results indicate that e-procurement led to a reduction in procurement costs by 10-15%, while qualitative insights highlight the need for capacity-building initiatives to overcome resistance to technological change. However, challenges such as unreliable energy supply (mean = 4.02) and limited technological integration hinder the full potential of e-procurement. Unique Contribution to Theory, Policy and Practice: These findings suggest that e-procurement can play a crucial role in improving efficiency, transparency, and competitiveness in Ghana’s construction sector, provided systemic challenges are addressed.

Plundered or profitably pumped-up? The effects of private equity takeover

Plundered or profitably pumped-up? The effects of private equity takeover

Evaluating the impact of ESG on financial risk: the moderating effects of operational ability and profitability in Indonesian infrastructure firms

Purpose This study aims to examine the impact of environmental, social, and governance (ESG) practices on financial risk, with operational ability and profitability as moderating variables, within the infrastructure sector in Indonesia. Design/methodology/approach The sample consists of 14 infrastructure companies listed on the Indonesia Stock Exchange over the period of 2020–2022, resulting in a total of 42 firm-year observations. The study employs a random-effects model for panel data regression analysis to test the hypotheses. ESG serves as the independent variable, financial risk as the dependent variable, and operational ability (measured by total asset turnover) and profitability (measured by return on assets) as moderating variables. Findings The results reveal that ESG practices have a significant positive impact on financial risk. Furthermore, operational ability negatively moderates the relationship between ESG and financial risk, while profitability positively moderates this relationship. These findings suggest that although higher ESG scores may elevate financial risk due to associated costs and uncertainties, firms with greater operational efficiency and profitability are better equipped to mitigate and manage these risks more effectively. Research limitations/implications This study focuses on infrastructure companies in Indonesia, which may limit the generalizability of the findings to other sectors or geographic regions. Future research could broaden the scope by incorporating diverse industries and cross-country contexts to enhance the robustness and applicability of the results. Practical implications The findings offer valuable insights for policymakers and corporate managers. Policymakers can develop frameworks to encourage sustainable practices without imposing excessive financial burdens on companies. Managers can leverage operational efficiency and profitability to integrate ESG practices effectively, thereby balancing sustainability goals with financial performance. Originality/value This study contributes to the scarce literature on the moderating effects of operational ability and profitability on the relationship between ESG practices and financial risk, particularly in the context of the infrastructure sector in Indonesia.

Determinants of Corporate Tax Avoidance: The Role of Financial Distress, Profitability, and Capital Intensity in Emerging Markets

This study investigates the influence of financial distress, profitability, and capital intensity on tax avoidance among companies listed on the Egyptian stock market from 2020 to 2022. Utilizing a quantitative approach, the research analyzes secondary data from 36 firms that maintained profitability during the study period. Tax avoidance is measured using the Current Effective Tax Rate (CETR), while financial distress, profitability, and capital intensity are assessed through the Altman Z-score, Return on Assets (ROA), and capital intensity ratio, respectively. Multiple regression analysis reveals that profitability has a significant negative effect on tax avoidance, suggesting that highly profitable firms are less inclined toward aggressive tax planning. Conversely, financial distress and capital intensity exhibit no significant relationship with tax avoidance, underscoring the context-specific dynamics in an emerging market like Egypt. These findings contribute to the growing body of literature on corporate tax behavior by highlighting the unique determinants of tax avoidance in developing economies. Policymakers are encouraged to consider these insights when designing tax regulations that promote compliance while addressing economic disparities. Future research should expand on these results by incorporating broader datasets and exploring the role of corporate governance and institutional factors in shaping tax strategies

Examining the Nexus between Firm Profit and Corporate Social Responsibility: Evidence from Selected Banks

The research investigates the relationship between firm profit and CSR for 14 selected banks in Nigeria covering the period 2016 to 2022 using secondary data from banks’ annual financial reports in the form of panel data. Bank profit after tax is the response variable while CSR expenditures and employee welfare expenses (internal CSR) were proxies for CRS. The study used Granger Causality to show the direction of causality between the variable, guided by the theoretical framework of Carrol’s CSR pyramid and ethical consumer hypothesis. From the results, only two hypotheses were accepted out of four. It was found that CSR expenditure impact bank profits and vice versa. However, there was no relationship between bank profits and employee welfare expenses.

The Value and Profits of Firms

Abstract The real growth of the stock market value of firms has increased from close to 0% on average per year between 1958 and 1980, to 5.2% between 1980 and today. This change coincides with the rise of market power and profits, starting in 1980. This paper proposes to decompose the value of firms based on profits (earnings) rather than dividends. Because firms on average pay out only half of profits in dividends, dividends poorly measure firm performance. I decompose the sources of the rise of the value of all publicly traded firms into: 1. The subjective and risk-free discount factor; 2. Expected future profits; and 3. Shareholder equity (retained earnings). I find that 20% of the rise is due to the discount factor, and 80% is due to profits (half of which is retained earnings). I build a general equilibrium model of the economy where firms have market power; I perform counterfactuals and evaluate the welfare implications. The objective is to study the impact of competition policy. If market power today dropped to the level of 1980, average stock market values would be 40% lower. If market power had never increased in 1980, the average stock values would be 80% lower.

Operating Profit Margin, Financial Leverage, and Return on Invested Capital's Effects on the Profitability of Firm in Jordan's Industrial Sector

The study sought to clarify the determinants affecting the financial performance of industrial sector companies listed on the Amman Stock Exchange for the years 2017-2021, where information related to the company's performance, especially its profitability, is valuable to support administrative provisions regarding expected changes in the company's future control over economic resources. The research has used the E-Views 12 program for data processing and panel data regression processing to examine the influence of operating profit margin, financial leverage, and return on invested capital. The results indicate that both return on invested capital and operating profit margin have a positive effect on profitability. Financial leverage does not have a positive effect on profitability. Received: 30 November 2024 / Accepted: 5 January 2025 / Published: 11 January 2025

Does state ownership reduce the negative effect of local corruption on firm performance?

ABSTRACT Although the effects of corruption and state ownership on corporate performance have been studied for many years, prior studies have not fully addressed how state ownership determines the effect of local corruption on firm performance. As a transition economy, Vietnam is a good laboratory to fill this research gap. With a sample of 6,015 observations, we find that state ownership mitigates the negative impact of local corruption on firm profitability. In addition, the role of state ownership is stronger for large firms.

Capital Structure on Firm Profitability: perspectives from non-financial listed Firms in Egypt

Capital Structure on Firm Profitability: perspectives from non-financial listed Firms in Egypt

Firm characteristics and environmental performance: Evidence from ASEAN-5 countries

Abstract Issues regarding environmental performance have become important recently. Moreover, after the Paris Agreement, it encouraged global attention to desire and responsibility for the environment. This issue puts pressure on companies to carry out their business activities responsibly so that they can report environmental performance well as a form of legitimacy. This research examines company characteristic factors, especially firm profitability, firm size, and firm size, which can influence environmental performance in five Southeast Asian countries: Indonesia, Singapore, Malaysia, Thailand, and the Philippines—using unbalanced panel data of 748 companies from 2013 to 2022, from Thomson Reuters. The research results show that the three company characteristics, size, and age, show significant positive results. This means that the bigger or longer the company has been around, the better its environmental performance. Meanwhile, company profitability produces significant negative results. The more companies focused on gaining profits, the lower their environmental performance. When companies focus on increasing their profits, they tend to neglect and avoid environmental performance because of the costs it causes. The research findings are expected to provide input for companies and governments to determine effective policies between business organizations and environmental performance integration within them.

Dynamic Triangulation between Shariah Compliance, ESG Transparency, and Firm Profitability

Environmental, social responsibility, and good governance (ESG) ethics are becoming more important to businesses. Long-term sustainability is a goal. Ethical conduct, sustainability, and financial performance are increasingly studied. Thus, more research on this topic has been conducted. Islamic corporate finance, which is growing in popularity, raises the question of whether Shariah and ESG screening criteria improve or hurt financial performance. This study compares Shariah-compliant stocks with high-scoring (ESG-Leaders) and low- scoring ESG ratings to add new insights to the literature (ESG-Laggards). Shariah-compliant firms may suggest high ESG risk even when they are Shariah-compliant. This study uses panel regression models to assess how ESG practises affect performance. This study examines ESG practises and corporate performance. Panel data from a sample of companies is analysed using regression models. The results will reveal how ESG practises affect corporate performance. This study will add to the literature on ESG practises and business performance and will attract policymakers, policymakers, and practitioners. This study employs panel regression models to examine how environmental, social, and governance (ESG) policies and Shariah screening affect Malaysian Islamic enterprises’ financial performance from 2017 to 2021. This study found a link between Shariah-compliant organisations’ financial success and ESG criteria, notably social ones. This study shows that ESG leaders, firms with higher ESG scores, perform better financially than enterprises with lower ESG scores. This observation suggests that if ethical involvement delivers low scores, the company’s valuation may decline. If not handled properly, ethical issues can cost money. Thus, ethical factors should be thoroughly assessed and integrated into the company’s strategy to avoid damaging its valuation.

Impact of liquidity and leverage on the profitability of Indian manufacturing firms

Impact of liquidity and leverage on the profitability of Indian manufacturing firms

Effect of Resource Allocation on Pharmaceutical Firm Profitability in the Indian Market

Effect of Resource Allocation on Pharmaceutical Firm Profitability in the Indian Market

PERAN KEBIJAKAN HUTANG DAN PERTUMBUHAN PENJUALAN DALAM PENINGKATAN CAPAIAN KEUNTUNGAN PERUSAHAAN

This study aims to determine the impact of debt policy, sales growth and dividend policy on corporate profitability. All LQ 45 companies listed on the Indonesia Stock Exchange during the period 2020-2022 are included in the population of this academic study. The results of the study show that debt policy has a significant and negative impact on firm profitability, while sales growth has a significant and positive impact on firm profitability. The report makes a number of suggestions for companies, including optimising debt policy, effectively managing sales growth and adjusting dividend policy. It is recommended that investors conduct comprehensive fundamental analysis and include different types of investments in their portfolios. In order to obtain more comprehensive results, it is suggested that future researchers increase the sample size and duration of data analysis.

Driving Profitability Through Strategic Working Capital Management: Insights from Pakistan’s Textile Industry

Efficient management of working capital is essential for ensuring financial stability and enhancing profitability, particularly in industries that are capital-intensive, such as textiles. This study investigates the relationship between working capital management and profitability within the textile industry, utilizing data from ten firms listed on the Pakistan Stock Exchange over the period 2019 to 2023. The study employs the Ordinary Least Squares regression model to analyze the impact of key working capital metrics—such as average payment period, inventory turnover, average collection period, and cash conversion cycle—on performance indicators, including return on assets, return on equity, and return on capital employed. The findings reveal that a shorter cash conversion cycle and faster receivables collection significantly improve firm profitability. Additionally, longer accounts payable periods and higher inventory turnover are also positively linked with enhanced financial performance. These results underscore the importance of optimizing working capital components for achieving operational efficiency and sustaining profitability. This study not only contributes to the existing literature by addressing a research gap in the context of the textile industry, but also provides valuable managerial and policy insights. Furthermore, the findings have broader implications for promoting sustainable business practices, supporting the efficient use of resources, and contributing to global sustainability goals.

The Effect of Institutional Ownership, Company Size, Profitability on Debt Policy in Health Sector Companies

This study looks at how debt policy in health sector companies listed on the Indonesia Stock Exchange (IDX) is influenced by institutional ownership, company size, and profitability. Data was collected through a quantitative approach from annual financial reports for the years 2019-2023. After considering outlier data, the study population consisted of 34 businesses, which resulted in 31 observations through purposive sampling method. The analysis was conducted with classical assumption tests and multiple linear regression using the SPSS software program. The results show that firm size has no significant effect on debt policy, but institutional ownership and profitability have a significant effect. The model is free from heteroscedasticity, normality, and multicollinearity problems thanks to the classical assumption test. According to the regression analysis, the model can explain 62.1% of the variation in debt policy. The study found that, although more profitable firms tend to rely on internal funding sources, institutional ownership can serve as a monitoring tool. However, firm size is not a major factor in debt policy making. This study provides practical implications for corporate financial management in the healthcare industry and helps investors assess the factors that influence corporate funding structure. It is expected that future research will analyze more variables due to research limitations, such as the small sample size and relatively short research time.

Dynamics of Dividend Payout in Korean Corporations: A Comprehensive Panel Analysis Across Economic Cycles

This research conducts a meticulous examination of the determinants influencing dividend payout dynamics among firms listed on the Korean Stock Exchange (KSE) from 1995 to 2021, a period characterized by profound economic fluctuations. By leveraging a dynamic panel data model and the Generalized Method of Moments (GMM) for estimation, the study addresses endogeneity concerns while exploring the effects of firm-specific and macroeconomic variables on dividend yields. The investigation delineates three distinct economic phases: normal conditions, financial crises, and the aggregate study period, facilitating a granular understanding of firms’ dividend payout adaptability under varying economic landscapes. Empirical findings underscore the persistence of dividend payments, revealing a variable adjustment speed toward target dividend yields contingent upon the economic context, with an expedited adjustment observed during crises. Crucially, firm profitability emerges as a consistent determinant of dividend yields across all examined periods, whereas the influence of macroeconomic variables is notably more pronounced during periods of economic normalcy. This research elucidates the complex interplay between internal corporate strategies and external economic pressures in shaping dividend policies, thereby enriching the discourse on dividend payout behavior in the context of Korea’s economic evolution from an emerging to a developed market.

3D printing firms in South Africa and their financial management practices

As the 3D printing industry continues to gain momentum in South Africa's SME sector, issues about their financing and financial management need to be investigated. This is due to the capital-intensive nature of the business as well as the financing challenges encountered by 3D printing SMMEs. This study aimed to contribute to research on financial management practices and sources of finance as predictors of performance for 3D printing small and medium enterprises (SMMEs) in terms of profitability and increase in client base. The study adopted the interpretivist research paradigm, exploratory research design, inductive research approach and qualitative research method to achieve the objectives of the study. A total of twenty (20) 3D printing firms participated in the study. Employees and managers were purposefully selected to participate in the study. The participants comprised finance managers, senior managers and managers of the twenty (20) 3D printing firms that participated in the study. Structured interviews served as the instrument for data collection based on the objectives of the study. Data gathered from interviews were transcribed and analysed using thematic analysis. The study revealed that effective working capital management practices boost the profitability of 3D printing SMMEs, particularly through adopting no-credit policies and hiring competent finance officers. These practices also help expand the client base by ensuring timely delivery of products and services, with customer relationship management being a strategic approach. The study also revealed that liquidity management practices significantly boost the profitability of 3D printing firms by ensuring sufficient cash flow to meet financial obligations, managing financial risks, and ensuring timely product delivery, thereby enhancing customer satisfaction and contributing to growth in the customer base. The study recommends the need for 3D printing SMMEs to prioritise cash flow management and develop robust systems to monitor and control working capital components, including inventory, receivables, and payables.

Intertemporal Pricing with Resellers: An Empirical Study of Product Drops

Product drops occur when a retailer releases a limited-edition product line on a specific date for a short period of time. Due to limited inventory of the product and the short sales horizon, a resale market emerges where products may resell at higher prices once the firm stocks out. The firm faces a central tradeoff: pricing too high may lead to a longer stockout time and future markdowns; pricing too low may lead to transfer of profits to resellers. Any firm in this position may ask, “How do resellers impact my profit?” To answer this question, we build a dynamic structural model that captures customer decisions to consume or strategically resell, as well as the firm’s intertemporal pricing decision in the presence of resellers. We estimate our model using a unique data set from a retailer of baby clothing with weekly product drops, where customers engage in a resale marketplace through Facebook groups. We find resale data collection and analysis is valuable to incorporate into pricing as firm profit increases by 8.8%, and reseller presence reduces firm profit by 5.8% even if resale data are used in pricing. These impacts are magnified by resale market growth, demonstrating that managers need to take action as resale markets gain wider adoption. This paper was accepted by Victor Martínez-de-Albéniz, operations management. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.04152 .