How Firm and Market Characteristics Affect Profitability: An Empirical Study

How Firm and Market Characteristics Affect Profitability: An Empirical Study

Ioannis Katsampoxakis (Department of Economics, University of Athens, Athens, Greece), Haralampos Basdekis (Univesity of Athens, Athens, Greece and Ministry of Finance, Greece) and Konstantinos Anathreptakis (Alpha Bank, Athens, Greece)
Copyright: © 2015 |Pages: 17
DOI: 10.4018/IJCFA.2015010104
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Abstract

This study aims to assess the impact of specific corporate and market features on the profitability of firms. More precisely, the variables examined for the purposes of this study are firms' size, financial leverage, accruals, volatility of profitability, growth rate of the Greek economy, the 10-year Greek government bond yield, and the Greek sovereign debt crisis. The empirical results exhibit an average profitability of 10.71%, which varies significantly both between firms and during the time period examined. Another finding of this study is the verification of the theoretical relationship between the above variables and Greek firms' profitability between 2004 and 2012. Whereas variables such as firms' size, volatility of profitability and accruals do not seem to affect firms' profitability in a statistically significant way, the signs of the coefficients are consistent with those found the literature review.
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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.

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