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

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