ArticlePDF Available

The effect of firm’s size and leverage on profitability: A panel data approach

Authors:

Abstract

The purpose of this study is to investigate the effect of firm’s size and leverage on the profitability of publicly listed firms adopting IFRS. A Panel data fixed-effects regression model is employed to estimate the relationship between firm size and leverage on profitability, while controlling also for the effects of other variables as asset turnover and liquidity. The study is based on a sample of 94 firms from Malaysia over the period from 2012 to 2016. The study is applied to the industrial sector. The study concluded that firm size is positively and significantly related to profitability. However, leverage is negatively and significantly related to profitability. This study contributes to the literature by using data from a developing country. It provides an important insight on the international debate on the effects of firm size and leverage on decision-making.
A preview of the PDF is not available
... Ibhagui and Olokoyo (2018) found that leverage has negative effect on small firms rather than big firms. Salah and Elewa (2018) investigated the effect of firm's size and leverage of publicly listed firms adopting International Financial Reporting Standards. A Panel data fixed-effects regression model was employed to estimate the relationship between firm size and leverage, while controlling also for the effects of other variables as asset turnover and liquidity. ...
Article
Full-text available
Firm size and age influence firm level leverage. The extent of such influence on the oil and gas industry is not known in Nigeria. There are very few empirical studies that interrogate the effects of firm size and listing age on leverage in Nigeria. This study examines the impacts of firm size and listing age on firm level financial leverage of listed oil and gas companies in Nigeria. It was a non-experimental research and correlational in nature. Data were extracted from annuals and accounts of 8 firms over a period of 13 years (2007-2019) and subjected to descriptive statistics (number of observations, mean, standard deviations, mean, minimum and maximum means) and inferential statistics (multiple regression analysis). The findings show that firm size has negative and significant impact on firm level financial leverage. Firm age has positive and significant effect on firm level leverage. In this paper, we contribute to the literature by examining the presence and direction of firm size and listing age to financial leverage using data from listed oil and gas firms in Nigeria. Our study is the first to address the adverse implications of modelling with firm size and listing age on firm level financial leverage.
Article
Full-text available
This study seeks to extend Abor's (2005), and Gill, et al., (2011) findings regarding the effect of capital structure on profitability by examining the effect of capital structure on profitability of the industrial companies listed on Amman Stock Exchange during a six-year period (2004-2009). The problem statement to be analyzed in this study is: Does capital structure affect the Industrial Jordanian companies? The study sample consists of 39 companies. Applying correlations and multiple regression analysis, the results reveal significantly negative relation between debt and profitability. This suggests that profitable firms depend more on equity as their main financing option. Yet recommendations basedon findings are offered to improve certain factors likethe firm must consider using an optimal capital structure and future research should investigate generalizations of the findings beyond the manufacturing sectors.
Article
Full-text available
The purpose of this paper is to provide an in-depth description of the interrelationship between firm size, growth, and profitability of non-financial companies listed at Karachi stock exchange. The study is based on the sample of 70 (seventy) non-financial companies listed at Karachi Stock Exchange of Pakistan, selected on the basis of their market capitalization. Panel data techniques were employed using 700 observations of each of the variables of study; size (log natural of total assets), growth (sustainable growth rate for firm) and profitability (return on assets). Observations are collected for ten years (2001-2010). The study concluded that there is study reveals that all the profitability has strong positive relationship with the growth of the firm; however size has less significant and negative impact on the profitability. One suggestion for further research would be to replicate the study in order to get more cases. Furthermore, it would be valuable to take a more long-term focus to examine the described relationships in the long run. The paper highlights the importance of these measures which are generally used for performance evaluation. Paper sets out the criteria that under which situations the company should focus which of the measure, so that company may derive its strategies on that way. This paper improves our preferences about the three major measures of the firm. Moreover, it contributes to the literature of financial management that how these three measures have trade-off between them.
Article
Full-text available
The aim of this research study is to examine the influence of firm’s size on firm’s profitability in listed firms of Sri Lankan hotels and travels sector firms. For this purposes, this study performed fixed and random effect econometric estimation models and used the data for the time period from 2008 to 2012. The study results indicate that between the two econometric estimation models, Hausman specification test recommended the estimation of the fixed effects model. According to the fixed effect model result firm’s size is positively related to profitability measure of return on assets. Further this study reveals those total debt ratio has a negative relationship with firm’s profitability. This research explores the influence of firm’s size on firm’s profitability in listed firms of Sri Lankan hotels and travels sector firms and laid some contribution to the existing literature as Sri Lankan firms’ context. Moreover that observed findings could assist the corporate sector management as well as policy makers to take appropriate decisions in their fields. Based on the knowledge of authors, this is the first study that reveals the influence of firm’s size on firm’s profitability in listed firms of Sri Lankan hotels and travels sector firms. Moreover, influence of firm’s size on firm’s profitability is misty; hence this study continues that search by the help of Sri Lankan hotels and travels sector firm’s data.
Article
Full-text available
The aim of this study is to investigate the affect of firm size on profitability. In this study, data of 200 companies which were active in Istanbul Stock Exchange (ISE) between the years 2008-2011 has been used. “Return on Assets” (ROA) has been used as indicators of firm profitability and total assets, total sales and number of employees have been used as indicators of size. Multiple regression and correlation methods have been used in empirical analyses. The result of analysis indicates a positive relation between size indicators and profitability of firms. Control variables as the age of the firms and leverage rate have been found in a negative relation with ROA, but liquidity rate and ROA have been determined to have a positive relation.
Article
Full-text available
This study investigates the determinants of profitability for industrial firms in Oman. Therefore, a sample of 17 industrial companies listed on Muscat securities market covering the period from 2006 till 2013 is utilized. Results from the panel ordinary least squares model reveal a positive and statistical significant relationship between profitability, the firm size, growth, fixed assets and working capital. On the other hand, the average tax rate and the financial leverage variables show a negative relationship with profitability. However, this relationship is significant only for the financial leverage variable. The study concludes that large growing firms with efficiently managed assets improve revenue and ultimately enhance profitability.
Article
This study aimed to analyze the effect of leverage and the size of a company to its profitability. Data were obtained from the financial statements of 100 qualified manufacturing companies listed in Indonesia Stock Exchange in the period of 2009-2014. Leverage was measured by debt ratio, while firm size was measured by total assets and total sales, and profitability by return on assets. Panel data regression analysis was implemented to analyze the influence of independent variables to the dependent variable. The most suitable panel data regression model in this study was a fixed effect model. The study found that the debt ratio had a significant positive effect on profitability while total assets had a significant negative impact. In contrast, total sales had statistically insignificant effect to the profitability of the companies.
Article
This study was aimed to investigate the effect of capital structure on firms’ profitability with special emphasis on Ethiopian Large Private Manufacturing Firms using panel data of five consecutive years (2006/07-2010/11G.C). The secondary data sources (audited financial statements) have been collected from the randomly selected thirty three large private manufacturing firms in Ethiopia. Linear regression model has been employed to analyze the relationship between firms’ profitability and capital structure. Specifically, Random-effect Generalized Least Square of panel data regression model has been selected to empirically test the literature driven hypotheses. Finally, the findings of this study revealed that a significant positive relationship between firms’ profitability and total debt ratio which indicate firm’s capital structure.
Article
The major objective of this paper is to analyze and understand the impact of leverage on the profitability of the firm. This paper investigates the relationship between the leverage (financial leverage, operating leverage and combined leverage) and the earning per share. And it aims to describe how the earning capacity of the firm is influenced by the fixed operating costs and the fixed financial charges. This study also explains the relationship between the Debt equity ratio and Earning per Share and how effectively the firm be able debt financing. In this study, selected Cement companies are taken for analysis and hypothesis are examined with the help of one way ANOVA and t-test. Apart from that, other tools like skew ness and kurtosis are applied to examine "Lack of symmetry" used to understand the distribution of data and 'Flatness or peaked ness'. The results suggest that the leverage and profitability and growth are related and the leverage is having impact on the profitability of the firm.
Article
The present study examines the relationship of firm structure and profitability, taking into consideration major characteristics such as firm size, firm age, debt ratio and ownership structure of 48 Jordanian industrial companies for a period of one decade, that is from 1995 to 2004, listed in Amman Stock Exchange. Hypotheses are developed taking into account both previous research and the particular idiosyncrasies of the national context. The study employed two model specifications in order to test the hypotheses, using the profitability measurement of Rate of Return on Equity (ROE) and Rate of Return on Investment (ROI). The empirical findings suggest that firm structure emerges as an important factor affecting profitability. The results indicate that a weak relationship existed between some of the independent variable and profitability, except for debt ratio.