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Determinants of profitability in European manufacturing and services: evidence from a dynamic panel model

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  • John Goddard
  • Manouche Tavakoli
  • John Wilson

Abstract

Recent advances in panel data econometrics are used to investigate the determinants of profitability for manufacturing and service sector firms in Belgium, France, Italy and the UK, for the period 1993-2001. The paper synthesizes empirical models that have been used by researchers in industrial economics, strategic management and accounting and finance. Despite the formation of the European Union's Single Market in goods and services, abnormal profit still appears to persist significantly from year to year. There is evidence of a negative size-profitability relationship, but the relationship between market share and profitability is positive, and stronger in manufacturing than in services. The relationship between a firm's gearing ratio and its profitability is negative, but firms with higher liquidity tend to be more profitable.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 15 (2005)
Issue (Month): 18 ()
Pages: 1269-1282

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Handle: RePEc:taf:apfiec:v:15:y:2005:i:18:p:1269-1282

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Cited by:
  1. Philipp Mundt & Mishael Milakovic & Simone Alfarano, 2014. "Gibrat's law redux: Think profitability instead of growth," Working Papers 2014/02, Economics Department, Universitat Jaume I, Castellón (Spain).
  2. Kebewar, Mazen, 2013. "Does debt affect profitability? An empirical study of French trade sector," EconStor Preprints 73185, ZBW - German National Library of Economics.
  3. Alperovych, Yan & Hübner, Georges, 2011. "Explaining returns on venture capital backed companies: Evidence from Belgium," Research in International Business and Finance, Elsevier, vol. 25(3), pages 277-295, September.
  4. Sonia Baños-Caballero & Pedro García-Teruel & Pedro Martínez-Solano, 2012. "How does working capital management affect the profitability of Spanish SMEs?," Small Business Economics, Springer, vol. 39(2), pages 517-529, September.
  5. Jan Schiefer & Stefan Hirsch & Monika Hartmann & Adelina Gschwandtner, 2013. "Industry, firm, year and country effects on profitability in EU food processing," Studies in Economics 1309, Department of Economics, University of Kent.
  6. Zélia Serrasqueiro & Paulo Maçãs Nunes, 2008. "Performance and size: empirical evidence from Portuguese SMEs," Small Business Economics, Springer, vol. 31(2), pages 195-217, August.
  7. Zélia Serrasqueiro, 2009. "Growth and Profitability in Portuguese Companies: a Dynamic Panel Data Approach," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 11(26), pages 565-573, June.
  8. Gschwandtner, Adelina & Hirsch, Stefan, 2011. "Profit Persistence in the Food Industry: Evidence from five European Countries," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114534, European Association of Agricultural Economists.
  9. Jaraitė, Jūratė & Kažukauskas, Andrius, 2013. "The profitability of electricity generating firms and policies promoting renewable energy," Energy Economics, Elsevier, vol. 40(C), pages 858-865.

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