Correlates of Profitability of Large and Medium scale manufacturing Industries in Ethiopia
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Date
2009-06
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Addis Abeba university
Abstract
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
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Keywords
Balanced Panel, Industry Market Structure Elements, Firm Profitability