Determinants of profitability in European manufacturing and services: evidence from a dynamic panel model

Abstract

Recent advances in panel data econometrics are used to investigate the determinants of profitability for manufacturing and service sector firms in Belgium, France, Italy and the UK, for the period 1993-2001. The paper synthesizes empirical models that have been used by researchers in industrial economics, strategic management and accounting and finance. Despite the formation of the European Union's Single Market in goods and services, abnormal profit still appears to persist significantly from year to year. There is evidence of a negative size-profitability relationship, but the relationship between market share and profitability is positive, and stronger in manufacturing than in services. The relationship between a firm's gearing ratio and its profitability is negative, but firms with higher liquidity tend to be more profitable.

Determinants of Profitability: Evidence from Real Sector Firms Listed in Borsa Istanbul

“…In this situation the coefficient estimate for firm size is anticipated to be positive. Alternatively, a negative association between size and profitability may suggest that assets are not employed efficiently (Goddard et al 2005;Pervan and Mlikota, 2013;Pattitoni et al 2014). …”

“…(1) given that a higher level of liquidity is likely to create a problem regarding over-investment (Bhayani, 2010;BERJ (8) 4 2017 Hatem, 2014). However, according to Goddard et al (2005), the sign of the liquidity variable could be positive because of utilizing lucrative long term investment opportunities. Besides, Firms with high liquidity levels is less likely to be affected by sudden changes in the market in which they operate (Petracci and Spisni, 2014).…”

“…In Belgium, Spain, Italy, France and the UK, Goddard et al (2005) investigate the determinants of 12.508 firms' profitability in manufacturing and service sector over the period 1993-2001 using dynamic panel data estimator. Their results reveal that size and gearing ratio have a negative influence on firms' ROA.…”

Firm Age, Size and Profitability Dynamics: A Test of Learning by Doing and Structural Inertia Hypotheses

“…In addition, to the Hall (1987) and Evans (1987), decreasing relation between growth and size, Goddard, Tavakoli and Wilson (2005) The weak and negative relationship has been explained by the structural inertia theory (Hannan & Freeman, 1984) which states that as the organisation becomes larger, the volume of bureaucracy increases and this may cause stiff resistance to change which will ultimately decrease the level of profit. Even though this position contradicts the liability of smallness theory which says that expectations of success are brighter for large organisations and that on the average, small firms have a higher likelihood of failure as result of limited access to capital, problem is attracting and retaining skilled workers and higher administrative costs (Aldrich & Anster, 1986).…”

Learning by exporting: Lessons from high-technology SMEs

“…Firm performance, especially productivity and profitability, is extremely heterogeneous even with sectors (Bartelsman and Doms, 2000;Goddard et al, 2006) and is subject to many influences unrelated to exporting. In addition, firms learn from many external as well as internal sources which may have nothing to do with exposure to export markets, and thus it is not always easy to separate out the learning by exporting effect.…”