THE EFFECT OF FIRM SIZE ON PROFITABILITY: EVIDENCE FROM TURKISH MANUFACTURING SECTOR

Authors : Ozcan Isik, Esra Aydin Unal, Yener Unal

Pages : 301-308

Doi:10.17261/Pressacademia.2017.762

View : 17 | Download : 7

Publication Date : 2017-12-30

Article Type : Research

Abstract :Purpose - This study investigates whether size of 112 publicly listed firms in manufacturing sector affects their profitability in Turkey during the period 2005-2013. Methodology - Dynamic panel data approach (i.e. two-step system GMM estimator) taking into account potential endogeneity of firm-level variables is employed to estimate the effect of alternative firm size indicators on firm profitability.   Findings- Estimation results suggest that after controlling for financial risk, liquidity level, growth opportunities, unsystematic risk, firm age, and the other factors, the indicators of firm size measured by firm’s assets, sales and number of employees tend to have a positive influence on the profitability of firm measured by operating return on assets. Conclusion- There is enough statistical evidence to support a linear relation between firm size measures and profitability of firms in the period analyzed. However, our empirical results do not support the quadratic or cubic association between size measures and profitability.
Keywords : Size-profitability relationship, dynamic panel data, manufacturing industry, Borsa Istanbul, Turkey