Correlates of Profitability of Large and Medium scale manufacturing Industries in Ethiopia

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Addis Abeba university


The purpose of this study is an attempt to explore the impact of various industry market structure elements (such as: Advertising Intensity, Capital Intensity, Inventory Turnover, Firm Size, etc.) on profitability measurements of large and medium scale manufacturing industries of Ethiopia. The analysis is based on balanced panel data of 91 firms over the period 1997 to 2006. To this effect, three accounting measures of firm’s profitability were utilized: Price cost margin (PCM), Before tax profit rate (BTAP) and Return on Assets (ROA). Even though the results vary according to the measure of profitability employed, these findings support those Leahy (1998), who found that the results did not vary systematically according to estimation method. The study findings generally indicate that firm size, market share, inventory turn over and relative productivity index are associated positively and significantly with firm’s profitability, while a significant negative relationship is found with firm’s location, depreciation rate, firm’s age, firm’s total asset and import intensity. Unlike those determinants, the other variables such as domestic demand rate, capital intensity and advertising intensity have significant influence on firm’s profitability, but with mixed sign. Key words: Balanced panel, industry market structure elements, firm profitability



Balanced Panel, Industry Market Structure Elements, Firm Profitability