Factors affecting profitability in Malaysia

Abstract

Purpose The purpose of this paper is to examine the factors affecting profitability in Malaysian-listed companies. It has been argued that profitability is the main pillar for any company to survive in the long run. Although profitability is the primary goal of all business ventures, scant attention has been paid to the factors that affect profitability in developing countries. This study investigates the factors affecting profitability in Malaysian-listed companies. Design/methodology/approach This research is based on five independent variables that were empirically examined for their relationship with profitability. These variables are: firm size (as measured by total sales), working capital (WC), company efficiency (assets turnover ratio), liquidity (current ratio) and leverage (debt equity ratio and leverage ratio). Data of 120 companies listed on Bursa Malaysia covering the period from 2012 to 2014 were extracted from companies’ annual reports. Pooled ordinary least squares regression and fixed-effects were used to analyze the data. Findings The findings show a strong positive relationship between firm size (total sales), WC, company efficiency (assets turnover ratio) and profitability. The results also show a negative relationship between both debt equity ratio and leverage ratio and profitability. Liquidity (current ratio) has no significant relationship with profitability. Research limitations/implications Due to the time limitation, the data includes only 120 companies listed in bursa Malaysia and covers the period from 2012 to 2014. Practical implications These results benefit internal users (such as mangers, shareholders and employees). They can realize the determinants of enhancing the profitability of their company after the depreciation of the Malaysian currency and therefore concentrate more on the factors that enhance their companies’ profitability. On the other side, other external users (such as investors, creditors, new established companies, tax authority) also may get advantages of these results. It is clear that those users concern about the profitability of companies and the determinants of their profitability after the currency’s depreciation. Originality/value This study differs than previous studies in many ways: first, it focuses on non-financial listed companies in Malaysia. Previous studies have concentrated on companies in the financial sector, such as banking and financial institutions or on industrial organizations. Second, this study analyzes the data in companies’ annual reports for a three-year period from 2012 to 2014. During this period, the economy in Malaysia was fluctuating due to currency depreciation. Third, the study used both return on equity and earnings per share as indicators of profitability. Fourth, the results of the study provide empirical evidence that large size firms with efficiently managed assets can improve operating income and ultimately enhance profitability. Last but not least, this study applies the resource-based theory and the trade-off theory.

Supply chain finance, financial constraints and corporate performance: An explorative network analysis and future research agenda

“…For example, Gill et al (2010) analyzed manufacturing firms listed on the New York Stock Exchange and found a positive association between the CCC and firm profitability. These research results were substantiated by the findings of Alarussi and Alhaderi (2018), who find a strong positive relationship between working capital, firm size, company efficiency and profitability.…”

Profitability in Egyptian hotels: business model and sustainability impact

“…O 'Neill and Mattila (2006) in their research in US hotels found that hotel profit is highly correlated with size, market segment, and occupancy percentages. A follow-up study in Malaysia (Alarussi & Alhaderi, 2018) confirmed the correlation between organisation size and profitability. Nanda and Panda (2018) differentiated the profitability determinants into two main factors, i.e.…”

“…It has been argued that profitability is one of the main pillars for any hotel to survive in the long run. Even though profitability is a prime goal for all business leaders, it is suggested that insufficient attention has been paid to exploring drivers of profitability, especially in developing countries (Alarussi & Alhaderi, 2018). Therefore, the novelty of this empirical study consists of the inclusion of both controlled and uncontrolled determinants of hotel profitability.…”

Sunk Cost Dilemma Behavior: The Contribution Marketing Expenses towards Financial Performance

“…H 5 : operating cash flow has a significant effect on the profitability Talk about the marketing expense; it will vary depending on how big the firm size. The increasing firm size provides greater improvement in manag- Volume 22, Issue 4, October 2018: 625-642 | 632 | ing the sales of the company and leads to higher profitability (Anderson-MacDonald, 2014;Alarussi & Alhaderi, 2017). According to Niresh & Velnampy (2014), the firm size will describe the amount, and the variety of production capacity also will show the ability of the firm to provide concurrently to its customers.…”

“…The firms may require external funding for capital expansion if the cash flow from operation does not match. Operating cash flow is related to main business activities (Alarussi & Alhaderi, 2017). For example: selling inventory, purchasing inventory, paying salaries of the employee, and providing good services.…”