Determinant of Profitability of Foreign Firms in Leather Industry in Ethiopia
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Date
2023-12-04
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A.A.U
Abstract
This study was conducted to examine determinants of profitability foreign owned firms in leather
industry in Ethiopia. Based on this main purpose, this study has used firm specific and
macroeconomic determinants and it has examined effect of age of a firm, size of a firm, labor
productivity of a firm, leverage of a firm, operating expense of a firm, output market of a firm,
and economic growth of the country. The study has included 13 foreign owned firms that were
operating in Ethiopia for more than 10 years and the study period includes years from 2013 to
2022. Based on its objectives, the study has followed quantitative research approach and
employed descriptive and explanatory research designs. It has used quantitative data that was
collected from secondary. The study data includes firm-specific and macroeconomic factors. The
firm-specific data includes financial characteristics of firms and it was collected from income
statements of the firms and from leather industry development Institute (LIDI). The
macroeconomic data was about economic growth and this data was collected from Ethiopian
Central Statistics Authority (CSA). As this study has included cross-sections of the firms and time
of years from 2013 to 2022, it has followed panel data analysis methods. Accordingly, the study
has conducted Hausman and LM tests and random effect model to select appropriate model for
empirical estimations. Based on the regression result, it was identified that profitability of
foreign owned firms in leather industry in Ethiopia is positively and significantly affected by
their labor productivity and leverage. In contrast, it is negatively and significantly affected by
age of a firm and output market for their products. Moreover, effect of operating expense is
negative and significant at 10% significance level. However, profitability of the firms is not
affected by their size and economic growth of the country.
Key Words: Foreign owned firms, Leather industry, Profitability, Random Effect Model