What Determines The Profitability of Companies: Case of Croatian Food and Beverage Industry

Abstract

A company's profitability has always attracted the attention of academics and practitioners interested in revealing the main factors that determine business success. Although profitability has been widely investigated in manufacturing industry as a whole, studies related to the individual sectors within this industry are fairly rare. This is especially true for the food and beverage industry. Accordingly, the aim of this paper was to investigate the factors that determine companies' profitability in the Croatian food and beverage industry during the period from 1999 to 2009. The results of the conducted dynamic panel analysis revealed negative and significant influence of company's debt ratio on profitability; and significant positive influence of company's size, concentration ratio and past performance on current profitability. Additionally, MES, risk, and asset turnover had no significant role in determining profitability.Reference to this paper should be made as follows: Pervan, M.; Mlikota, M. 20B.What Determines the

Determinants of Profitability: Evidence from Real Sector Firms Listed in Borsa Istanbul

“…These results regarding size variable mean that the firms having more assets can diminish their costs and increase their profitability level owing to the scale economies idea. Generally, our results in terms of size are similar to those of Majumdar (1997) for India; Pervan and Mlikota (2013) for Croatia; Nunes and Serrasqueiro (2015) and Nunes et al (2009) for Portugal, Yazdanfar (2013) for Sweden, Andres (2008) for Germany, and Asimakopoulo et al (2009) for Greece. However, these results contradict those of Goddard et al (2005) for Belgium, Spain, Italy, France, and the UK, Močnik and Širec (2015) for Slovenia, Hunjra et al (2014) for Pakistan, and Saito (2008) for Japan.…”

“…Return volatility: This variable, defined as the standard deviation of monthly stock returns for the prior 12 months, may be anticipated to have a positive influence on profitability taking the utilization of inside information into account (Demsetz and Villalonga, 2001;Pervan and Mlikota, 2013). On the other hand, earlier empirical studies by Marcelo et al (2014) and Poutziouris et al (2015) report a negative linkage between firm specific risk and profitability of firm.…”

“…In this situation the coefficient estimate for firm size is anticipated to be positive. Alternatively, a negative association between size and profitability may suggest that assets are not employed efficiently (Goddard et al 2005;Pervan and Mlikota, 2013;Pattitoni et al 2014). …”

“…Debt structure: As stated by Asimakopoulos et al (2009) and Pervan and Mlikota (2013) a rise in debt ratio causes firms to pay high interest periodically, which results in poorer performance and lower profitability. Consequently, we expect to find a negative linkage between debt structure and profitability.…”

“…In a study on the food and beverage industry of Croatia, Pervan and Mlikota (2013) try to analysis what determines the profitability during the period from 1999 to 2009 by using dynamic panel analysis. Results of the analysis indicate that lagged profitability, size, and concentration ratio are found to be statistically significant variables which positively influence profitability.…”