Profitability determinants among micro firms: evidence from Swedish data

doi:10.1108/17439131311307565

Paper

Profitability determinants among micro firms: evidence from Swedish data

Published Nov 10, 2013 · Darush Yazdanfar

International Journal of Managerial Finance

Q2 SJR score

207

Citations

23

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Abstract

Purpose - The purpose of this paper is to investigate the variables affecting firm profitability, applying the seemingly unrelated regression method to a large sample of approximately 87,000 observations covering 12,530 non-financial micro firms operating in four industry sectors, from 2006 to 2007. Design/methodology/approach - The study considers profitability determinants at the firm as well as industry affiliation levels in examining hypotheses developed from resource-based approaches. Seemingly unrelated regression (SUR) was used to detect the combination of variables that best estimated the impact of the explanatory variables on the dependent variable. Findings - The findings indicate that while firm size, lagged profitability, growth, and productivity positively influence profitability, firm age and industry affiliation negatively influence it. The empirical results suggest that productivity is the most significant determinant of profitability. These results are fairly robust across the various industry sectors covered in the study and are largely consistent with the hypotheses developed from the resource-based approach. Research limitations/implications - The current study addresses an issue that is relevant to various stakeholders, including managers, investors, and debtholders, and may facilitate further research in similar areas of small business studies. Practical implications - The question of what factors determine profitability should accordingly be one of high priority for both researchers and practitioners, including managers, investors, debt holders, and policy makers. Originality/value - Most of previous studies of profitability determinants were actually performed in the industrial organization discipline. This study examines the impact of internal determinants including firm size, age, and sector on firm profitability from a managerial perspective. Unlike the other approaches, this approach suggests that firm performance is mainly determined by internal rather than external variables.

Highly Cited

Study Snapshot

Productivity is the most significant determinant of profitability in micro firms, while firm age and industry affiliation negatively influence it.

PopulationOlder adults (50-71 years)

Sample size24

MethodsObservational

OutcomesBody Mass Index projections

ResultsSocial networks mitigate obesity in older groups.

Paper

Profitability determinants among micro firms: evidence from Swedish data

References

The Causes of Profit Heterogeneity in Large Australian Firms

Firm differences account for two-thirds of profitability heterogeneity in large Australian firms, with total factor productivity significantly enhancing profitability, but this relationship is not identical among firms.

Firm‐specific and economy wide determinants of firm profitability: Greek evidence using panel data

Firm profitability in Greek non-financial firms is positively affected by size, sales growth, and investment, and negatively affected by leverage, current assets, EMU participation, and the adoption of the euro.

Profitability in Portuguese service industries: a panel data approach

Portuguese service industries' profitability is influenced by diversification, motivation, and innovation, while debt payments negatively impact it.

Determinants of profitability in European manufacturing and services: evidence from a dynamic panel model

European manufacturing firms with higher market share and liquidity are more profitable, while firms with higher gearing ratios and lower liquidity are less profitable.

Profit persistence in the ‘very’ long run: evidence from survivors and exiters

Profit persistence is significant in both surviving and exiting US companies, with industry concentration, growth, profit size, and volatility playing key roles.

Citations

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Firm profitability in Poland increases with higher inflation and exchange rate depreciation, and real wage and salary growth, while international migration is negatively associated with it.