Citations


Contact Us

For Marketing, Sales and Subscriptions Inquiries
2637 E Atlantic Blvd #43110
Pompano Beach, FL 33062
USA

Conference List

The Economics and Finance Letters

December 2020, Volume 7, 2, pp 189-199

Determinants of Firm Profitability: Evidences from Bangladeshi Manufacturing Industry

Mohammad Sahabuddin

,

Sabreena Khan Synthia

Mohammad Sahabuddin 1

Sabreena Khan Synthia 2

  1. Lecturer Canadian University of Bangladesh, Bangladesh. 1

  2. Student University of Dhaka, Bangladesh. 2

Pages: 189-199

DOI: 10.18488/journal.29.2020.72.189.199

Share :

Article History:

Received: 15 July, 2020
Revised: 24 August, 2020
Accepted: 10 September, 2020
Published: 28 September, 2020


Abstract:

This study aims to investigate the factors which have impact on profitability of the manufacturing firms of Bangladesh. The determinants are divided into three categories i.e. firm-specific, industry-specific and macroeconomic factors and the profitability of the firms is defined with return on assets (ROA). To investigate this relationship, the study has taken into consideration of 508 sample observations from 113 Bangladeshi listed manufacturing firms covering the year from 2014 to 2018. The model this study used, includes the dynamic aspect of profitability and thus a dynamic panel estimator i.e. the General Method of Moments (G.M.M.) was applied. The result of this study shows that firm-specific factors (age, labor cost), industry-specific factor (concentration) and macroeconomic factors (G.D.P. growth rate, inflation) have significant influence on manufacturing firm’s profitability.
Contribution/ Originality
This study examined the Panel data by using General Method of Moments (G.M.M.) to investigate the determinants of profitability which contributes to the existing literature in manufacturing industry of Bangladesh by introducing variables from three different categories; firm-specific, industry-specific and especially macroeconomic factors for the very first time.

Keywords:

Profitability, Manufacturing industry, Panel data, G.M.M, Inflation rate, Bangladesh economy.

Reference:

Anderson, E. W., Fornell, C., & Mazvancheryl, S. K. (2004). Customer satisfaction and shareholder value. Journal of Marketing, 68(4), 172-185. Available at: https://doi.org/10.1007/978-3-319-54774-9_9.

Bain, J. S. (1951). Relation of profit rate to industry concentration: American manufacturing, 1936–1940. The Quarterly Journal of Economics, 65(3), 293-324. Available at: https://doi.org/10.2307/1882581.

Bhayani, S. J. (2010). Determinant of profitability in Indian cement industry: An economic analysis. South Asian Journal of Management, 17(4), 6-20.

Charles, D., Ahmed, M. N., & Joshua, O. (2018). Effect of firm characteristics on profitability of listed consumer goods companies in Nigeria. Journal of Accounting, Finance and Auditing Studies, 4(2), 14-31.

Demir, F. (2009). Financialization and manufacturing firm profitability under uncertainty and macroeconomic volatility: Evidence from an emerging market. Review of Development Economics, 13(4), 592-609. Available at: https://doi.org/10.1111/j.1467-9361.2009.00522.x.

Dickinson, V., & Sommers, G. A. (2012). Which competitive efforts lead to future abnormal economic rents? Using accounting ratios to assess competitive advantage. Journal of Business Finance & Accounting, 39(3‐4), 360-398. Available at: https://doi.org/10.1111/j.1468-5957.2012.02283.x.

Doğan, M. (2013). Does firm size affect the firm profitability? Evidence from Turkey. Research Journal of Finance and Accounting, 4(4), 53-59.

Domowitz, I., Hubbard, R. G., & Petersen, B. C. (1986). Business cycles and the relationship between concentration and price-cost margins. RAND Journal of Economics, 17(1), 1-17.

Eljelly, A. M. (2004). Liquidity-profitability tradeoff: An empirical investigation in an emerging market. International Journal of Commerce and Management, 14(2), 48-62.

Gaur, J. (2011). Financial performance measures of business group companies: A study of Indian non-metallic mineral products industries. The IUP Journal of Business Strategy, 7(4), 45-53.

Grazzi, M., Jacoby, N., & Treibich, T. (2016). Dynamics of investment and firm performance: Comparative evidence from manufacturing industries. Empirical Economics, 51(1), 125-179. Available at: https://doi.org/10.1007/s00181-015-0991-2.

Hamid, M. K. (2016). Dynamics of firm size and performance relationship: Evidence from the banking sector of Bangladesh. BUBT Journal, 8(1), 42-58.

Haque, S., Aziza, T., Khatun, M., & Islam, M. N. (2017). Leverage, risk and profitability: Empirical evidence from selected manufacturing sectors of Bangladesh. Management Development, 31(1), 1-17.

Hirsch, S., & Hartmann, M. (2014). Persistence of firm-level profitability in the European dairy processing industry. Agricultural Economics, 45(S1), 53-63. Available at: https://doi.org/10.1111/agec.12129.

Hirsch, S., Schiefer, J., Gschwandtner, A., & Hartmann, M. (2014). The determinants of firm profitability differences in EU food processing. Journal of Agricultural Economics, 65(3), 703-721.

Hopp, W. J., Iravani, S. M., & Yuen, G. Y. (2007). Operations systems with discretionary task completion. Management Science, 53(1), 61-77. Available at: https://doi.org/10.1287/mnsc.1060.0598.

Hossain, A., & Khaled, M. S. (2018). Determinants of bank profitability before and after crisis: Evidence from Bangladesh. International Journal of Finance and Accounting, 7(5), 142-146.

Islam, M. S., & Khan, M. S. (2019). The determinants of profitability of the pharmaceutical industry of Bangladesh: A random effect analysis. International Journal of Financial Research, 10(2), 68-74.

Issa, M. O. (2013). Effect of selected firm characteristics on financial performance of firms listed in the agricultural sector at the Nairobi securities exchange. Master’s Thesis, University of Nairobi, Nairobi, Kenya.  

Ittner, C. D., & Larcker, D. F. (1998). Are nonfinancial measures leading indicators of financial performance? An analysis of customer satisfaction. Journal of Accounting Research, 36(3), 1-35.

Jeong, K.-Y., & Masson, R. T. (1990). Market structure, entry, and performance in Korea. The Review of Economics and Statistics, 72(3), 455-462.

Kaluwa, M. B., & Reid, C. G. (1991). Profitability and price flexibility in manufacturing for a developing country. The Journal of Industrial Economics, 39(6), 689–700.

Khalid, R., Saif, T., Gondal, A. R., & Sarfraz, H. (2018). Working capital management and profitability. Mediterranean Journal of Basic and Applied Sciences (MJBAS), 2(2), 117-125.

Khan, A. M. (2017). Determinants of bank profitability in Bangladesh. Paper presented at the 20th Biennial Conference on Economics and Ethics of the Bangladesh Economic Association, Dhaka, Bangladesh.

Khan, M. A. (2020). Effects of age, size, sponsor and government shareholdings on profitability: Evidence from engineering industry of Bangladesh. Journal of Business Economics and Finance, 9(2), 171-181. Available at: https://doi.org/10.17261/pressacademia.2020.1222.

Lee, J. (2009). Does size matter in firm performance? Evidence from US public firms. international Journal of the Economics of Business, 16(2), 189-203. Available at: https://doi.org/10.1080/13571510902917400.

Lima, M. A., & Resende, M. (2004). Profit margins and business cycles in the Brazilian industry: A panel data study. Applied Economics, 36(9), 923-930.

Fisher, M.L., Krishnan, J., & Netessine, S. (2006). Retail store execution: An empirical study. Working Paper.

Machin, S., & Van Reenen, J. (1993). Profit margins and the business cycle: Evidence from UK manufacturing firms. Journal of Industrial Economics, 41(1), 29-50. Available at: https://doi.org/10.2307/2950616.

Mahmud, K., Mallik, A., Imtiaz, M. F., & Tabassum, N. (2016). The bank-specific factors affecting the profitability of commercial banks in Bangladesh: A panel data analysis. International Journal of Managerial Studies and Research, 4(7), 67-74.

Majumdar, S. K. (1997). The impact of size and age on firm-level performance: Some evidence from India. Review of Industrial Organization, 12(2), 231-241.

Malik, H. (2011). Determinants of insurance companies’ profitability: An analysis of insurance sector of Pakistan. Academic Research International, 1(3), 315-321.

Margaretha, F., & Supartika, N. (2016). Factors affecting profitability of small medium enterprises (SMEs) firm listed in Indonesia stock exchange. Journal of Economics, Business and Management, 4(2), 132-137.

Mason, E. S. (1949). The current state of the monopoly problem in the United States. Harvard Law Review, 62(8), 1265–1285.

Meah, M. R., & Chaudhory, N. U. (2019). Corporate governance and firm’s profitability: An emerging economy-based investigation. Indian Journal of Corporate Governance, 12(1), 71-93.

Mule, R. K., & Mukras, M. S. (2015). Financial leverage and performance of listed firms in a frontier market: Panel evidence from Kenya. European Scientific Journal, 11(7), 534- 550.

Oliva, R., & Sterman, J. D. (2001). Cutting corners and working overtime: Quality erosion in the service industry. Management Science, 47(7), 894-914.

Pattitoni, P., Petracci, B., & Spisni, M. (2014). Determinants of profitability in the EU-15 area. Applied Financial Economics, 24(11), 763-775. Available at: https://doi.org/10.1080/09603107.2014.904488.

Perry, P. (1992). Do banks gain or lose from inflation? Journal of Retail Banking, 14(2), 25-31.

Pervan, M., Pervan, I., & Curak, M. (2016). Business success enhance with firm’s age? Case of croatian food manufacturing industry. Paper presented at the Proceedings of the 26th International Business Information Management Association Conference, Amsterdam, Milano.

Pervan, M., Pervan, I., & Ćurak, M. (2019). Determinants of firm profitability in the Croatian manufacturing industry: Evidence from dynamic panel analysis. Economic Research, 32(1), 968-981.

Prince, Y. M., & Thurik, A. R. (1992). Price-cost margins in Dutch manufacturing. De Economist, 140(3), 310-335. Available at: https://doi.org/10.1007/bf01799323.

Prince, Y. M., & Thurik, R. (1995). Do small firms' price-cost margins follow those of large firms? Bulletin of Economic Research, 47(4), 321-327.

Prince, Y., & Thurik, R. (1993). Firm-size distribution and price-cost margins in Dutch manufacturing. Small Business Economics, 5(3), 173-186. Available at: https://doi.org/10.1007/bf01531914.

Rahman, M. M., Meah, M. R., & Chaudhory, N. U. (2019). The impact of audit characteristics on firm performance: an empirical study from an emerging economy. The Journal of Asian Finance, Economics and Business (JAFEB), 6(1), 59-69. Available at: https://doi.org/10.13106/jafeb.2019.vol6.no1.59.

Rezina, S., Ashraf, A., & Khan, M. A. (2020). An inferential study on the profitability determinants of the cement industry in Bangladesh. Asian Finance & Banking Review, 4(2), 8-21.

Saimum, H., & Ahmed, F. (2015). Determinants of bank profitability: A study on the banking sector of Bangladesh. Journal of Finance and Banking, 13(1), 43-57.

Salman, A. K., & Yazdanfar, D. (2012). Profitability in Swedish SME firms: A quantile regression approach. International Business Research, 5(8), 94-106.

Situm, M. (2015). The relevance of trend variables for the prediction of corporate crises and insolvencies. Zagreb International Review of Economics and Business, 18(1), 17-49. Available at: https://doi.org/10.1515/zireb-2015-0002.

Strickland, A. D., & Weiss, L. W. (1976). Advertising, concentration, and price-cost margins. The Journal of Political Economy, 84(5), 1109–1122.

Sur, D., & Chakraborty, K. (2011). Evaluating relationship of working capital and profitability: A study of select multinational companies in the Indian pharmaceutical sector. The IUP Journal of Management Research, 10(2), 7-22. Available at: https://doi.org/10.15373/22778179/feb2013/53.

Swiss, R. (2008). World insurance in 2007: Emerging markets leading the way. Zurich: Sigma.

Ton, Z. (2008). he effect of labor on profitability: The role of quality. o 09-040. Harvard Business School Working Papers, Harvard Business School.

Vijayakumar, A. (2011). An empirical study of firm structure and profitability relationship: The case Of Indian automobile firms. International Journal of Research in Commerce, IT and Management, 1(2), 100-109.

Wali, G., & Islam, A. (2018). Firm profitability and capital structure: An empirical study on the listed it companies of Bangladesh. Paper presented at the 11th International Conference on Management, Law, Economics and Interdisciplinary Studies.

World Bank. (2018). World development indicators, 2018. Washington, DC: World Bank.

Yoon, S. (2004). A note on the market structure and performance in Korean manufacturing industries. Journal of Policy Modeling, 26(6), 733-746.

Statistics:

Google Scholor ideas Microsoft Academic Search bing Google Scholor

Funding:

This study received no specific financial support.

Competing Interests:

The authors declare that they have no competing interests.

Acknowledgement:

Both authors contributed equally to the conception and design of the study.

Related Article

( 1 ) Determinants of Share Price Movement in Nigeria -The Management Perspective
( 2 ) Determinants of Tax Revenue in Ethiopia (Johansen Co-Integration Approach)
( 3 ) Determinants of Import Demand Functions of Pakistan: An ARDL Bound Testing Approach
( 4 ) Determinants of Rural Residential Solid Waste Collection Services in Lagos State
( 5 ) Determinants of Public Sector Corruption in Nigeria
( 6 ) Determinants of Banks Profitability & Liquidity and the Role of BASEL III in Islamic & Conventional Banking Sector of Pakistan: A Case Study of NBP
( 7 ) Estimating the Economic Determinants of Technical Efficiency of Bioenergy in EU-28: An Application of Tobit Analysis
( 8 ) Determinants of Corporate Tax Avoidance Strategies among Multinational Corporations in Malaysia
( 9 ) Determinants of Exchange Rate in Nigeria: A Comparison of the Official and Parallel Market Rates
( 10 ) Determinants of Financial Performance and its Impact on the Growth of Islamic Bank Assets on Indonesia
( 11 ) Analysis of Credit Ratings Determinants: Evidences in Brazilian and American States
( 12 ) Determinants of Profitability and its Implications on Corporate Values (Studies at Ceramic, Porcelain and Glass Sub Sector Listed in Indonesia Stock Exchange, 2009 - 2018)
( 13 ) Determinants of Firm Profitability: Evidences from Bangladeshi Manufacturing Industry
( 14 ) Determinants of Technical Efficiency of Hospitals in Kenya: 2012-2016
( 15 ) Impact of Labour, Capital and Human Resources in Productivity of Transport Firms in Nigeria
( 16 ) The Association Between Corporate Risk Disclosure and Firm Performance in Emerging Country – The Case of Egypt
( 17 ) The Effect of Selected Financial Ratios on Profitability: An Empirical Analysis of Listed Firms of Cement Sector in Saudi Arabia
( 18 ) Share Options, Share Award and Firm’s Performance: Evidence from Malaysian Public Listed Companies
( 19 ) Managerial Judgement Versus Financial Techniques in Strategic Investment Decisions: An Empirical Study on the Syrian Coastal Region Firms
( 20 ) Confirming the Mediation Effect of A Structural Model By Using Bootstrap Approach: A Case Study of Malaysian 8th Grade Students’ Mathematics Achievement
( 21 ) Empirical Evidence on Municipal Tax Policy and Firm Growth
( 22 ) The Indirect Impact of Overconfidence on the Performance of Tunisian Firms Through their Financing Structure
( 23 ) Firm-Level Investment Decisions Under Uncertainty and Irreversibility in Zimbabwes Private Firms
( 24 ) Re-Engineering Nigerian Economy through Human Capital Development: A Case of Manufacturing Firms In Southern Part of Nigeria
( 25 ) Do Derivative Instruments Increase Firm Risk for Indonesia Non-Financial Companies?
( 26 ) Does Capital Structure Affect the Profitability of Listed Family and Non-Family Firms? Evidence from Bangladesh
( 27 ) Change Management and Firm Performance of Selected Deposit Money Banks in Owerri, Imo State, Nigeria
( 29 ) Influence of Corporate Characteristics on Firm Leverage: Evidence from Bangladesh
( 34 ) How Telecommunication Development Aids Economic Growth: Evidence from Itu Ict Development Index (IDI) Top Five Countries for African Region
( 35 ) The Impact of Human Capital on Economic Growth: Evidence from Tunisia Using Star and Stecm Models
( 36 ) The Nexus between Financial Crisis and Household Consumption: Evidence from Emerging Countries
( 37 ) Effective Tax Administration and Institutionalization of Accounting Systems in Small and Medium Scale Enterprises: Evidence from Nigeria
( 38 ) Moderating Effect of Demographics on Monetary Motivation and Employees Job Performance Relationship: Evidence from Malaysia
( 39 ) The Impact of Dividend Policy on Shareholders’ Wealth before and After Financial Melt down: Evidence from FMCG Sector in India
( 40 ) Stock Market Performance and Economic Growth: Evidence from Nigeria Employing Vector Error Correction Model Framework
( 41 ) Climate Change Adaptation in Semi-Arid Dodoma: An Experience from Eco-Village
( 43 ) Impact of Inflation on Per Capita Income in Emerging Economies: Evidence from BRICS Nations
( 44 ) Does Managerial Emotional Biases Affect Debt Maturity Preference? Bayesian Network Method: Evidence from Tunisia
( 45 ) The Effect of Exchange Rate Changes on Consumer Prices in Nigeria: Evidence from VECM Model
( 46 ) Testing the PPP Using Unit Root Tests with Structural Breaks: Evidence from Politically Unstable Arab Countries
( 47 ) Academic Mobility for Engineering and Technology Graduates in Africa: Lessons and Experiences from the Implementation
( 48 ) Dynamics of Inflation, Economic Growth, Money Supply and Exchange Rate in India: Evidence from Multivariate Analysis
( 49 ) Does the Holiday Effect Differ from Religious to Non-Religious Holidays? Empirical Evidence from Egypt
( 50 ) Financial Deepening, Interest Rate Spread and Economic Growth: New Evidence from Sub-Sahara Africa
( 51 ) What Drives Banking Stability? Empirical Evidence from ECOWAS Countries
( 52 ) The Profitability of Momentum Strategies: Empirical Evidence from Damascus Securities Exchange (DSE)
( 53 ) Social Protection Programmes, Agricultural Production and Youth Employment in Nigeria: Analysis from LSMS-ISA
( 54 ) An Investigation of the Relationship between Manufacturing Output and Economic Growth : Evidence from Nigerias Data Set
( 55 ) Does Gold Price Lead or Lags Islamic Stock Market and Strategy Commodity Price? A Study from Malaysia
( 56 ) Foreign Capital Inflows and Unemployment in Nigeria: A New Evidence from ARDL-Bounds Testing Approach
( 57 ) Forecasting Equity Index Volatility: Empirical Evidence from Japan, UK and USA Data
( 58 ) Intention to Use E-Recruitment System: Empirical Evidence from Jobseekers in the Advertising Industry in Malaysia
( 59 ) Disaggregated Foreign Capital Inflows and Economic Growth in a Developing Economy: Empirical Evidence from Nigeria
( 60 ) Exchange Rate and Foreign Reserves Interface: Empirical Evidence from Nigeria
( 61 ) Impact of Network Finance Development on Inflation: Evidence from Chinese Market
( 62 ) The Relationship between Financial Development, Economic Growth, and Inflation: Evidence from Southeast Asia
( 63 ) Consumers’ Behavioural Intention to Adopt Mobile Banking in Rural Sub-Saharan Africa Using an Extension of Technology Acceptance Model: Lessons from Zimbabwe
( 64 ) Externality Effects of Sachet and Plastic Bottled Water Consumption on the Environment: Evidence from Benin City and Okada in Nigeria
( 65 ) Inflation, Oil Revenue, and Monetary Policy Mix in an Oil-Dependent Economy: Empirical Insights from the Case of Nigeria
( 67 ) The Relationship between Creative Accounting Risks and Auditing Risks from the Perspective of External Auditors in Saudi Arabia
( 68 ) The Impact of Economic Growth, Oil Price, and Financial Globalization Uncertainty on Financial Development: Evidence from Selected Leading African Countries
( 69 ) Up or Down! House Management and Public Finance Theory from America’s Era of Hastert
( 70 ) Interest Rate Ceilings and Financial Exclusion in Kenya: Evidence from Commercial Banks’ Sectoral Credit Distribution
( 71 ) Non-Linear Effects of Intellectual Property Rights on Technological Innovation: Evidence from Emerging and Developing Countries
( 72 ) Effect of Tax Administration on Tax Revenue of States in African Countries: Evidence from Nigeria
( 75 ) Exploring the Linkages between Remittances, Economic Growth and Poverty: Empirical Evidence from Pakistan
( 77 ) The Influence of Information Technology and Communication Supply Chain Management Performance for Greater SME Manufacturing in Aguascalientes
( 79 ) Analysis of Environmental Factors Affecting Manufacturing Small and Medium-Size Enterprises in Kogi State Nigeria
( 81 ) Factors Affecting the Individual Stock Price Index (IHSI) Industrial Manufacturing Sector in Indonesia, Automotive Sub Sectors, and Components in Indonesia Stock Exchange (IDX)
( 82 ) Infrastructure Development, Capacity Utilization and Manufacturing Value Added in Nigeria