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

Year 2017, Volume: 6 Issue: 4, 301 - 308, 30.12.2017

Ozcan Isik Esra Aydin Unal Yener Unal

https://doi.org/10.17261/Pressacademia.2017.762

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

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