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

Abstract

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. ARTICLE HISTORY

Determinants of Profitability: A Study on Manufacturing Companies Listed on the Dhaka Stock Exchange

“…Egbunike and Okerekeoti (2018) and Prempeh, Sekyere, and Amponsah (2018) found a significant positive relationship between liquidity and profitability in Nigerian manufacturing firms. Chowdhury and Amin (2007), , Hirsch, Schiefer, Gschwandtner, and Hartmann (2014) and Zaid et al (2014) also found the same result, while Sur and Chakraborty (2011) found no significant relationship, and Eljelly 2004 Capital-intensive industries are required to take a high level of investment in fixed assets for starting up a business as well as for their overall functioning (Pervan et al, 2019). Goldar and Aggarwal (2005) found a positive relationship between capital intensity and profitability, while Dickinson and Sommers (2012) found a negative relationship.…”

“…Inflation affects profits by reacting to sales volume by influencing the level of costs and by changing the relationship between cost and prices. Ali & Ibrahim (2018) and Pervan, Pervan, & Ćurak (2019) found a positive relationship between inflation rate and profitability of the Croatian manufacturing industry. The same thing was found by Akben-Selcuk (2016); Al-Jafari and Samman 2015; Tailab (2014) and Batra and Kalia (2016); however, Egbunike and Okerekeoti (2018) found a negative relationship between inflation and profitability.…”

“…Liquidity is often defined as a firm's ability to settle short-term liabilities (Pervan et al, 2019). Egbunike and Okerekeoti (2018) and Prempeh, Sekyere, and Amponsah (2018) found a significant positive relationship between liquidity and profitability in Nigerian manufacturing firms.…”

International diversification, ownership structure and performance in an emerging market: evidence from Chile

“…The overall validity of the instruments (the first condition) is tested with the Hansen test, while the second condition can be verified with Arellano and Bond's test statistics. Therefore, the GMM estimator will be consistent even if first-order autocorrelation exists (m1); however, second-order autocorrelation (m2) must not be present in the model (Pervan et al, 2019). Table 2 shows the general statistics of the variables under study.…”

Effects of technological changes and trade liberalisation on industrial development in the Western Balkan Countries

“…In this period, Croatia shows tendency towards import, negative trade balance and increased openness towards the E.U. Bezi c et al (2011), and later Pervan et al (2019) have researched the competitiveness of processing industry in Croatia. They analysed the index of foreign trade openness, competitive advantage and the structure of processing industry, and concluded that there are some competitive advantages.…”