Is there a relationship between debt and profitability?: Evidence from dairy industry in Serbia

Abstract

This paper analyzes if there is a relationship between debt and profitability in the dairy sector in Serbia. The research analyzed the period from 2017 to 2021, on a sample of all 16 large and medium dairy companies. Large and medium companies cover around 90% of total dairy production in Serbia. The Generalized Method of Moments (G.M.M.) is used to analyze the effect of debt indicator DR on the profitability ROA. Analyzed is if there is a linear relationship between two indicators and then a nonlinear one. Results showed that there is a linear and negative impact of debt indicators on the profitability of the observed dairy firms. Results showed that the nonlinear relationship is not statistically significant. Both models show the positive impact of company size and growth potential on profitability, while tangibility and inflation do not have a significant impact.