Growth and profitability on the emergent brazilian market

Abstract

Currently, the emerging economies are taking the top positions globally. The consequences of the financial crisis have caused investors and companies manage their capital and effort to emerging markets for growth and corporate profitability that developed countries do not offer. In this context, the aim of this paper is to analyze firm growth in Brazil over the 1995-2011 period and, more precisely, its explanatory variables and its interrelationship with firm profitability. To that end, we firstly estimate a dynamic panel data regression model employing the Generalized Method of Moments (GMM). Secondly, we employ a Vector Autoregressive (VAR) system to analyze the relationship between growth and profitability. Our main results indicate that to obtain higher rates of return provide increased business growth, but not vice versa. Also worth noting that business growth behavior is different depending on the ownership and control of companies. The findings provide a better understanding of the behavior of firm growth in Brazil being useful for making decision of entrepreneurs and investors, and can be used in the field of regional and social policy.

Financial Performance – Determinants and Interdependencies Between Measurement Indicators

“…Relevant indicators from the literature are used for these determinants, such as Table 1. Determinants of financial performance (source: elaborated by the authors) Internal determinants (specific to the company, its activities, and products/services) Financial determinants: business liquidity (Khidmat & Rehman, 2014;Husna & Desiyanti, 2016;Durrah et al, 2016;Egbunike & Okerekeoti, 2018;Kanakriyah, 2020;Imhanzenobe, 2020;Endri et al, 2020;Batrancea, 2021); capital structure (Dinu & Vintilă, 2017;Nenu et al, 2018;Muthoni, 2019;Mehmood et al, 2019;Dinh & Pham, 2020); sales volume and dynamics (Humera et al, 2011;Burja, 2011;Margaretha & Supartika, 2016;Husna & Desiyanti, 2016;Dinh & Pham, 2020;Endri et al, 2020;Le Thi Kim et al, 2021); company size, assessed by a number of employees or volume of assets, (Al-Jafari & Al Samman, 2015; Margaretha & Supartika, 2016;Ichev & Marinc, 2018;Fuertes-Callén & Cuellar-Fernández, 2019;Dinh & Pham, 2020;Golubeva, 2021), nature of assets, capital investment intensity, working capital (Bolek, 2014;Al-Jafari & Al Samman, 2015), market share (Capon et al, 1990;Izquierdo, 2015), financial sustainability (Imhanzenobe, 2020;Orazalin et al, 2019).…”

“…Specific to the economic environment: industry size, concentration, or industry affiliation (Izquierdo, 2015;Margaretha & Supartika, 2016;Golubeva, 2021); capital investment, advertising, business ecosystems (Micheli & Muctor, 2021); legal framework, market specificity, barriers to entry, consumer/user behaviour (Capon et al, 1990); competitiveness (Herciu & Ogrean, 2013). Specific to the economic context: economic growth (Dinu & Vintilă, 2017;Golubeva, 2021;Asimakopoulos et al, 2009); economic cycle (Vu et al, 2019), crisis (Batrancea, 2021); interest rate, inflation rate, exchange rate and the gross domestic product growth rate (Egbunike & Okerekeoti, 2018); stock market performance (Hamann & Schiemann, 2021); internationalisation (Zainudin et al, 2021), consumer price index, cost of financing (money and financial market); the degree of development of financial markets, the degree of openness of national economies, the balance of trade, exchange rate volatility.…”