How Firm and Market Characteristics Affect Profitability: An Empirical Study

2. Literature Review

The study of the literature concerning the factors that affect firms’ profitability, such as firms’ size, financial leverage and R&D expenditures, leads to equivocal results. Johnson (1967) and Newman (1968) did not detect any statistically significant relationship between R&D expenditures and firms’ profitability. However, Sougiannis (1994) supported that the above findings may be due to the use of a small sample, the econometric techniques used and the quality of the data used for the completion of the research. Storey et al. (1987) showed that small firms’ profitability increases with increasing size, while for large firms, profitability decreases with increasing size. Moreover, they found that the age of a small firm has a significant influence on small firms’ performance but little impact on large firms’ performance. In addition Christopoulos et al (2013) provided the liquidity status of firms as a significant factor that affects firms’ profitability and viability.