A Structural Equation Model of the Relationship between Advertising, Profitability and Size

2018

IJEK

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. KEYWORDS: firm profitability; return on assets (ROA); industry and firm effects; multilevel analysis; Czech food and drink industry.JEL CLASSIFICATION: L11, L66, D22

Section: Theoretical Backgroundmentioning

confidence: 99%

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

2018

IJEK

“…Assessing the impact of market concentration and other structural variables such as advertising intensity, capital requirements, economies of scale in production, firm size, industry growth or measures of risk has been the subject of many contributions in the literature (e.g. Sivasubramaniam & Kara, 2015;Bothwell et al, 1984;Setiawan et al, 2012;Collins & Preston, 1966;Dickson, 2005). However, research and evidence for the agribusiness sector is yet sparse (some notable exceptions are Schumacher & Boland, 2005;Weiss & Wittkopp, 2005;Höhler & Kühl, 2014;Dorsey & Boland, 2009;Janda et al, 2013;Čechura & Hockmann, 2011) since past research has focused on entire manufacturing sectors or over broad economic sectors.…”

Section: Introductionmentioning

confidence: 99%

Is the price-cost margin affected by the market concentration? Evidence from the Czech food and beverages industry

2017

BEH

The paper investigates the relationship between the market concentration and the price-cost margin in the Czech food processing industry during 2003-2014. Estimated econometric models with Fixed Effects supported hypothesis assuming the positive impact of the market concentration on the price-cost margin controlling for productivity. The increase in the productivity was associated with the increase of the pricecost margins. Based on the results, policy makers should promote market competition in the food processing industry, for example through the reduction of entry barriers. Another option worth consideration is to support R&D activities potentially leading to market transformation and increase in efficiency.

“…The assessment of the impact of industry factors, particularly the market concentration, as well as other structural variables such as the intensity of advertising and promotion, capital requirements, import competition, size of firms, industry growth or risk level, has been the subject of a number of research studies (e.g. Sivasubramaniam and Kara, 2015;Bothwell et al, 1984;Setiawan et al, 2012;Collins and Preston, 1966;Dickson, 2005). The analyses are based on economic literature usually using the econometric approach to investigate the relationship between market structure and performance.…”

Section: Literature Reviewmentioning

confidence: 99%

Drivers of ROE and ROA in the Czech Food Processing Industry in the Context of Market Concentration

2017

AOL

The paper investigates the effects of sectoral determinants on profitability of the Czech food processing industry over the period of years 2003-2014. Large micro-level sample (N = 10,509) for 12 years and across 9 food subsectors in the Czech Republic was utilized to create a sectoral panel dataset, which was used in the empirical analysis. As for the methods, regression models with fixed effects were employed. Sectoral profitability served as the dependent variable in regressions and it was operationalized by two variables, i.e. ROA and ROE. Both profitability indicators revealed the same influence of investigated determinants. Obtained results reported positive influence of higher market concentration on sectoral profitability, and also the increase of productivity was associated with the increase of ROA and ROE. It was confirmed that high indebtedness affects the profitability negatively. Contrary to the expectations, the effect of the import penetration on the profitability was not proved.