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Re-examining Firm Size-profitability Nexus: Empirical Evidence from Non-financial Listed Firms in Nigeria

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  • Clement Olalekan Olaniyi
  • Olayemi O. Simon-Oke
  • Olufemi Bodunde Obembe
  • Segun Thompson Bolarinwa

Abstract

The bulk of extant studies on the relationship between firm size and profitability focus on the effect of former on the latter, neglecting the possibility of feedback effect. This research work re-examines the direction of causality between firm size and profitability for 63 listed non-financial Nigerian firms for the period 1998–2010, using an innovative econometric methodology of a dynamic panel generalized method of moments to resolve the problem of endogeneity inherent in the relationship. The results establish a bidirectional relationship between firm size and profitability of firms in Nigeria. While firm size positively Granger-causes profitability, profitability, on the other hand, negatively Granger-causes firm size. This study therefore rebuts the popular assumption that causation only runs from firm size to profitability and not vice versa. The emerging conclusion drawn from this study is that profitability might be a vital tool to make firms grow faster if well managed as the economies of scale could also be induced.

Suggested Citation

  • Clement Olalekan Olaniyi & Olayemi O. Simon-Oke & Olufemi Bodunde Obembe & Segun Thompson Bolarinwa, 2017. "Re-examining Firm Size-profitability Nexus: Empirical Evidence from Non-financial Listed Firms in Nigeria," Global Business Review, International Management Institute, vol. 18(3), pages 543-558, June.
    • Handle: RePEc:sae:globus:v:18:y:2017:i:3:p:543-558
    DOI: 10.1177/0972150917692064
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    6. Segun Thompson Bolarinwa & Richard Olaolu Olayeni & Xuan Vinh Vo, 2021. "Is there a nonlinear relationship between nonperforming loans and bank profitability? Evidence from dynamic panel threshold," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 649-661, April.
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