Interrelationship Between Size, Growth and Profitability of Non-Financial Firms in Nigeria
Keywords:
size, growth, profit, generalized method of moment.
Abstract
This paper provides empirical evidence on the relationship between firm size, growth and the profitability of quoted non financial firms in Nigeria. Panel data framework was fitted to the secondary data obtained from one hundred and fifteen (115) companies that have ever been listed on the Nigerian Stock Exchange for the period 1998-2012. This study employs secondary data available in the annual reports of listed companies in Nigeria and the facts books published by the Nigeria Stock Exchange (NSE). The generalized method of moment results suggests that increase in profitability is the engine room of all encompassing growth. Transitively, profit has positive effect on growth while growth has positive effect on size.
References
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Akihiko and Dongun (2011)
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Asimakopoulous, I., Samitas, A. and Papadogonas, T. (2009). Firm-specific and economy wide determinants of firm profitability Greek evidence using panel data. Managerial Finance, 35, 930-939.
Arellano, M., Bond, S., (1991) Some Tests Of Specification For Panel Data: Monte Carlo Evidence And An Application To Employment Equations, The Review of Economic Studies, 58, 77–297.
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Audretsch, D.B., Klomp, L., Santarelli, E. and Thurik, A.R. (2004). Gibrat’s Law: are the services different? Review of Industrial Organization, 24(3), 301–324.
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Delmar, F., Davidsson, P. and Gartner, W.B (2003). Arriving at the high-growth firm. Journal of Business Venturing, 18, 189-216.
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Doğan M (2013) Does Firm Size Affect The Firm Profitability? Evidence from Turkey, Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.4, No.4
Dosi, G. (2005). Statistical Regularities in the Evolution of Industries: A Guide through some Evidence and Challenges for the Theory. Pisa, Sant’Anna School of Advanced Studies, LEM [Working Paper] Series 2005/17.
Dunne, P. and Hughes, A. (1994). Age, size, growth and survival: UK companies in the 1980s. The Journal of Industrial Economics, 42(2), 115–140.
Evans, D.S. (1987). Tests of alternative theories of firm growth.The Journal of Political Economy, 95(4), 657– 674.
Firas Naim Dahmash (2015) Size Effect on Company Profitability: Evidence from Jordan, International Journal of Business and Management; Vol. 10, No. 2;
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Geroski, P.A. (2000). The growth of firms in theory and practice. In: Foss, N., Mahnke, V. (Eds.), New Directions in Economic Strategy Research. Oxford University Press,Oxford.
Geroski, P.A. and Mazzucato, M. (2002).Learning and the sources of corporate growth. Industrial and Corporate Change, 11(4), 623–644.
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Giordano, J.N. (2003). Using the survivor technique to estimate returns to scale and optimum firm size. The BE Journal of Economic Analysis and Policy, 3(1), 14-15 International journal of Entrepreneurial Behavior and Research, 4(1), 18-27.
Giordano, J.N. (2003). Using the survivor technique to estimate returns to scale and optimum firm size. The BE Journal of Economic Analysis and Policy, 3(1), 14-15
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Goddard, J.;Wilson, J.; Blandon, P. (2002) Panel tests of gibrat’s law for Japanese manufacturing. Int. J. Ind. Organ. 20, 415–433.
Goddard, J., Molyneux, P. and Wilson, J. (2004). Dynamics of growth and profitability in banking. Journal of Money, Credit and Banking, 36, 1069–1091.
Goddard, J, Tavakoli, M. and Wilson, J., (2005), Determinants of Profitability in European Manufacturing and Services: Evidence From a Dynamic Panel Data, Applied Financial Economics, 15, pp. 1269-1282.
Gopinath (2012) Understanding The Determinants Of Firm Growth In Young Reits, Department of Real Estate
School of Design and Environment, National University of Singapore 4 Architecture Drive Singapore 117566
Greiner, L. (1972). Evolutions and Revolutions as Organizations Grow. Harvard Business Review, 50, 37-46.
Gschwandtner, A. (2005). Profit Persistence in the ´Very` Long Run: Evidence from Survivors and Exiters.
Applied Economics, 37, 793-806.
Hall, B.H. (1987). The relationship between firm size and firm growth in the US manufacturing sector. The Journal of Industrial Economics, 35(4), 583–606.
Hall, M. and Weiss, L. (1967).Firm size and profitability. The Review of Economics and Statistics, 49, 319–331.
Harhoff, D., Stahl, K. and Woywode, M. (1998). Legal form, growth and exit of West German firms-empirical results for manufacturing, construction, trade and service industries. The Journal of Industrial Economics, 46(4), 453–488.
Hart, P.E. and Prais, S.J. (1956). The analysis of business concentration: a statistical approach. Journal of the Royal Statistical Society, 119 (2), 150–191
Hart, P.E. and Oulton, N. (1999). Gibrat, galton and job generation. International Journal of the Economics of Business, 6 (2), 149–164.
Heshmati and Almas (2001). On the Growth of Micro and Small Firms: Evidence from Sweden. Small Business Economics, 17, 213-228.Hymer and Pashigian, 1962
Jang, S. and Park, K. (2011).Inter-relationship between firm growth and profitability. International Journal of Hospitality Management, 30, 1027-1035.
Jonsson, B. (2007). Does the size matter? The relationship between size and profitability of Icelandic firms. Bifrost Journal of Social Science, 1, 43–55.
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Kouser R, AwanA, Gul-e-Rana and Farasat Ali Shahzad (2012) Firm Size, Leverage And Profitability: Overriding Impact Of Accounting Information System, Business and Management Review Vol. 1(10) pp. 58 – 64
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Mansfield E, (1962). “Entry, Gibrat's Law, Innovation, and the Growth of Firms”, American Economic Review, 52: 1031-105 1.
Markman, G.D. and Gartner, W.B. (2002). Is extraordinary growth profitable? A study of Inc 500 high-growth companies. Entrepreneurship Theory and Practice, 27, 65–76.
Marris, R. (1964). The Economic Theory of Managerial Capitalism.MacMillan, London.
Mueller, D. (1972). A life cycle theory of the firm. The Journal of Industrial Economics, 20, 199-219.
Mueller, D. (1977). The persistence of profits above the norm. Economica, 44, 369–380.
Nawaf A and Salem A (2015) The Impact Of Financial Leverage, Growth, And Size On Profitability Of
Jordanian Industrial Listed Companies, Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.16,
Niresh J. A & Velnampy T (2014) Firm Size and Profitability: A Study of Listed Manufacturing Firmsin Sri Lanka, International Journal of Business and Management; Vol. 9, No. 4;
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Robert Kisavi Mule, Robert Kisavi Mule, Onesmus Mutunga Nzioka(2015) Corporate Size, Profitability And Market Value: An Econometric Panel Analysis Of Listed Firms In Kenya, European Scientific Journal, vol.11, No.13
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Sri Lankan Hotels and Travels sector, Research Journal of Finance and Accounting, ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.6
Uwuigbe U, Jafaru J And Ajayi(2012) A Dividend Policy And Firm Performance: A Study Of Listed Firms In Nigeria, Accounting and Management Information Systems Vol. 11, No. 3, pp. 442–454, 2012
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Velnampy, T., & Nimalathasan, B. (2010). Firm Size on Profitability: A Comparative Study of Bank of Ceylon and Commercial Bank of Ceylon Ltd in Sri Lanka. Global Journal of Management and Business Research,10(2), 96–100.
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Akihiko and Dongun (2011)
Amato, L. and Wilder, R.P. (1985). The effects of firm size on profit rate in U.S. manufacturing. Southern Economics Journal, 52, 181–190.
Amato, L. H. and Burson, T. E. (2007), “The effects of firm size on profit rates in the financial services”, Journal of Economics and Economic Education Research, Vol. 8, Issue 1, pp. 67 – 81.
Ammar, A., Hanna, A.S., Nordheim, E.V. and Russell, J.S. (2003). Indicator Variables Model of Firm’s SizeProfitability Relationship of Electrical Contractors Using Financial and Economic Data. Journal of Construction Engineering and Management, 129(2), 192-197.
Asimakopoulous, I., Samitas, A. and Papadogonas, T. (2009). Firm-specific and economy wide determinants of firm profitability Greek evidence using panel data. Managerial Finance, 35, 930-939.
Arellano, M., Bond, S., (1991) Some Tests Of Specification For Panel Data: Monte Carlo Evidence And An Application To Employment Equations, The Review of Economic Studies, 58, 77–297.
Asteriou, D. and Hall, S.G. (2007). APPLIED ECONOMETRICS (Revised Edition).Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world.
Atif A and Qaisar A M (2015) Firms’ Size Moderating Financial Performance in Growing Firms: An Empirical Evidence from Pakistan, International Journal of Economics and Financial Issues, 5(2), 334-339
Audretsch, D.B., Santarelli, E. and Vivarelli, M. (1999). Start-up size and industrial dynamics: some evidence from Italian manufacturing. International Journal of Industrial Organization, 17 (7), 965–983.
Audretsch, D.B., Klomp, L., Santarelli, E. and Thurik, A.R. (2004). Gibrat’s Law: are the services different? Review of Industrial Organization, 24(3), 301–324.
Azeem, M., Rehana,K. (2011). International Accounting Standards and Value Relevance of Book value and Earnings: Panel study from Pakistan. International Journal of Contemporary Business Studies, 2, 18-35.
Babalola, Y A (2013) The Effect of Firm Size on Firms Profitability in Nigeria, Journal of Economics and Sustainable Development , ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)Vol.4, No.5,
Banchuenvijit, W. (2012), “Determinants of Firm Performance of Vietnam Listed Companies”, Academic and Business Research Instıtute. http://aabri.com/SA12Manuscripts/SA12078.pdf
Bartel, A. (1995). Training, wage growth and job performance: evidence from a company database. Journal of Labor Economics, 13 (3), 401-25.
Becker-Blease J R, Kaen F R, Etebari A and Baumann H (2010) Employees, firm size and profitability in U.S. manufacturing industries, Investment Management and Financial Innovations, Volume 7, Issue 2,
Bottazzi, G., Dosi, G., Lippi, M., Pammolli, F. and Riccaboni, M. (2001).Innovation and corporate growth in the evolution of the drug industry. International Journal of Industrial Organization, 19, 1161–1187.
Chandler, G. N., Baucus and D.A. (1996). Gauging performance in emerging businesses: longitudinal evidence and growth pattern analysis. In: Reynolds, P.D., Birley, S., Butler,J.E., Bygrave, W.D., Davidsson, P., Gartner, W.B., McDougall, P.P. (Eds.), Frontiers of Entrepreneurship Research, 491-504.
Chandler, G.N. and Jansen, E. (1992). The founder’s self-assessed competence and venture performance. Journal of Business Venturing, 7, 223–236.
Chesher, A. (1979). Testing the law of proportionate effect. The Journal of Industrial Economics, 27 (4), 403– 411.
Coad, A. (2007).Testing the principle of ‘growth of the fitter’: the relationship between profits and firm growth. Structural Change and Economic Dynamics 18, 370–386.
Coad, A. (2009). The Growth of Firms: A Survey of Theories and Empirical Evidence. Edward Elgar Publishing.
ÇOBAN S (2014), The Interaction Between Firm Growth And Profitability: Evidence From Turkish (Listed) Manufacturing Firms, The Journal of Knowledge Economy & Knowledge Management / Volume: IX FALL
Contini, B. and Revelli, R. (1989).The relationship between firm growth and labor demand. Small Business Economics, 1(4), 309–314.
Cowling, M. (2004).The growth-profit nexus. Small Business Economics, 22, 1–9.
Das, S. (1995). Size, age and firm growth in an infant industry: The computer hardware industry in India. International Journal of Industrial Organization, 13, 111-126.
Delmar, F., Davidsson, P. and Gartner, W.B (2003). Arriving at the high-growth firm. Journal of Business Venturing, 18, 189-216.
Delmar F, McKelvie A, and Wennberg K (2012), Untangling the Relationships Among Growth, Profitability And Survival In New Firms, Ratio Working Paper No. 205
Doğan M (2013) Does Firm Size Affect The Firm Profitability? Evidence from Turkey, Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.4, No.4
Dosi, G. (2005). Statistical Regularities in the Evolution of Industries: A Guide through some Evidence and Challenges for the Theory. Pisa, Sant’Anna School of Advanced Studies, LEM [Working Paper] Series 2005/17.
Dunne, P. and Hughes, A. (1994). Age, size, growth and survival: UK companies in the 1980s. The Journal of Industrial Economics, 42(2), 115–140.
Evans, D.S. (1987). Tests of alternative theories of firm growth.The Journal of Political Economy, 95(4), 657– 674.
Firas Naim Dahmash (2015) Size Effect on Company Profitability: Evidence from Jordan, International Journal of Business and Management; Vol. 10, No. 2;
Fitzsimmons, J.R., Steffens, P.R., and Douglas E.J. (2005). Growth and Profitability in Small and Medium Sized Australian Firms. AGSE Entrepreneurship Exchange,Melbourn.
Geer, V.D.J., Hanraads, J.A.J., and Lupton R.A. (2000). The art of writing a scientific article. Journal of Scientific Communications, 163, 51-59.
Geroski, P.A. (2000). The growth of firms in theory and practice. In: Foss, N., Mahnke, V. (Eds.), New Directions in Economic Strategy Research. Oxford University Press,Oxford.
Geroski, P.A. and Mazzucato, M. (2002).Learning and the sources of corporate growth. Industrial and Corporate Change, 11(4), 623–644.
Gibrat, R. (1931). Les InegalitesEconomiques. Paris: Librairie du RecueilSirey.
Giordano, J.N. (2003). Using the survivor technique to estimate returns to scale and optimum firm size. The BE Journal of Economic Analysis and Policy, 3(1), 14-15 International journal of Entrepreneurial Behavior and Research, 4(1), 18-27.
Giordano, J.N. (2003). Using the survivor technique to estimate returns to scale and optimum firm size. The BE Journal of Economic Analysis and Policy, 3(1), 14-15
Glancey, Keith. 1998. Determinants of growth and profitability in small entrepreneurial firms. International Journal of Entrepreneurial Behaviour & Research 4 (1):18-27.
Goddard, J.;Wilson, J.; Blandon, P. (2002) Panel tests of gibrat’s law for Japanese manufacturing. Int. J. Ind. Organ. 20, 415–433.
Goddard, J., Molyneux, P. and Wilson, J. (2004). Dynamics of growth and profitability in banking. Journal of Money, Credit and Banking, 36, 1069–1091.
Goddard, J, Tavakoli, M. and Wilson, J., (2005), Determinants of Profitability in European Manufacturing and Services: Evidence From a Dynamic Panel Data, Applied Financial Economics, 15, pp. 1269-1282.
Gopinath (2012) Understanding The Determinants Of Firm Growth In Young Reits, Department of Real Estate
School of Design and Environment, National University of Singapore 4 Architecture Drive Singapore 117566
Greiner, L. (1972). Evolutions and Revolutions as Organizations Grow. Harvard Business Review, 50, 37-46.
Gschwandtner, A. (2005). Profit Persistence in the ´Very` Long Run: Evidence from Survivors and Exiters.
Applied Economics, 37, 793-806.
Hall, B.H. (1987). The relationship between firm size and firm growth in the US manufacturing sector. The Journal of Industrial Economics, 35(4), 583–606.
Hall, M. and Weiss, L. (1967).Firm size and profitability. The Review of Economics and Statistics, 49, 319–331.
Harhoff, D., Stahl, K. and Woywode, M. (1998). Legal form, growth and exit of West German firms-empirical results for manufacturing, construction, trade and service industries. The Journal of Industrial Economics, 46(4), 453–488.
Hart, P.E. and Prais, S.J. (1956). The analysis of business concentration: a statistical approach. Journal of the Royal Statistical Society, 119 (2), 150–191
Hart, P.E. and Oulton, N. (1999). Gibrat, galton and job generation. International Journal of the Economics of Business, 6 (2), 149–164.
Heshmati and Almas (2001). On the Growth of Micro and Small Firms: Evidence from Sweden. Small Business Economics, 17, 213-228.Hymer and Pashigian, 1962
Jang, S. and Park, K. (2011).Inter-relationship between firm growth and profitability. International Journal of Hospitality Management, 30, 1027-1035.
Jonsson, B. (2007). Does the size matter? The relationship between size and profitability of Icelandic firms. Bifrost Journal of Social Science, 1, 43–55.
Kaldor, N. (1966). Causes of the Slow Rate of Economic Growth of the United Kingdom: An Inaugural Lecture. Cambridge University Press, Cambridge, UK. Khatap et al. (2011)
Kouser R, AwanA, Gul-e-Rana and Farasat Ali Shahzad (2012) Firm Size, Leverage And Profitability: Overriding Impact Of Accounting Information System, Business and Management Review Vol. 1(10) pp. 58 – 64
Kumar, M.S. (1985). Growth, acquisition activity and firm size: evidence from the United Kingdom. The Journal of Industrial Economics, 33(3), 327–338.Mata (1994)
Mansfield E, (1962). “Entry, Gibrat's Law, Innovation, and the Growth of Firms”, American Economic Review, 52: 1031-105 1.
Markman, G.D. and Gartner, W.B. (2002). Is extraordinary growth profitable? A study of Inc 500 high-growth companies. Entrepreneurship Theory and Practice, 27, 65–76.
Marris, R. (1964). The Economic Theory of Managerial Capitalism.MacMillan, London.
Mueller, D. (1972). A life cycle theory of the firm. The Journal of Industrial Economics, 20, 199-219.
Mueller, D. (1977). The persistence of profits above the norm. Economica, 44, 369–380.
Nawaf A and Salem A (2015) The Impact Of Financial Leverage, Growth, And Size On Profitability Of
Jordanian Industrial Listed Companies, Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.16,
Niresh J. A & Velnampy T (2014) Firm Size and Profitability: A Study of Listed Manufacturing Firmsin Sri Lanka, International Journal of Business and Management; Vol. 9, No. 4;
Ofuan. J. Ilaboya1 & Izien. F. Ohiokha,(2016), Firm Age, Size and Profitability Dynamics: A Test of Learning by Doing and Structural Inertia Hypotheses, Business and Management Research Vol. 5, No. 1;
Papadogonas, T. (2005). The financial performance of large and small firms: evidence from Greece. International Journal of Financial Services Management, 2(1), 14-20.
Penrose, E. (1959). The Theory of the Growth of the Firm. Wiley Publishers, New York.
Reid, G.C. (1995). Early life-cycle behaviour of micro-firms in Scotland. Small Business Economics, 7, 89–95.
Robert Kisavi Mule, Robert Kisavi Mule, Onesmus Mutunga Nzioka(2015) Corporate Size, Profitability And Market Value: An Econometric Panel Analysis Of Listed Firms In Kenya, European Scientific Journal, vol.11, No.13
Roper, S. (1999).Modelling Small Business Growth and Profitability. Small Business Economics, 13, 235-252.
Rufin, R. (2007). Sales growth of Spanish tourist firms: some implications of Gibrat’s Law on marketing management. Tourism Management, 28, 788–805.
Samuels, J. Smyth, D. (1968). Profits, variability of profits and firm size. Economica, 35, 127–139.
Schneider (1991)
Serrasqueiro, Z. (2009). Growth and profitability in Portuguese companies: a dynamic panel data approach. Economic Interferences, 9, 565-573.
Shepherd, W. G. (1972). The Elements of Market Structure. The Review of Economics and Statistics, 54(1),25– 37.
Sidney Alexander (1949). The Effect of Size of Manufacturing Corporation on the Distribution of the Rate of Return. Review of Economics and Statistics, 229-35.
Simon, Herbert A. and Bonini, Charles P. (1958). The Size Distribution of Business Firms. American Economic Review, 48, 607-617.
Singh, A. and Whittington, G. (1975). The size and growth of firms. Review of Economic Studies, 42(1), 15–26.
Soininen, J., Martikainen, M., Puumalainen, K. and Kylaheiko, K. (2011).Entrepreneurial orientation: Growth and profitability of Finnish small- and medium-sized enterprises.
Sritharan, Vinasithamby (2015), Does firm size influence on firm’s Profitability? Evidence from listed firms of
Sri Lankan Hotels and Travels sector, Research Journal of Finance and Accounting, ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.6
Uwuigbe U, Jafaru J And Ajayi(2012) A Dividend Policy And Firm Performance: A Study Of Listed Firms In Nigeria, Accounting and Management Information Systems Vol. 11, No. 3, pp. 442–454, 2012
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Published
2023-12-28
How to Cite
Ibrahim Taiwo Razaq, & Prof. Akinlo A E. (2023). Interrelationship Between Size, Growth and Profitability of Non-Financial Firms in Nigeria . Central Asian Journal of Innovations on Tourism Management and Finance, 4(12), 107-121. https://doi.org/10.51699/cajitmf.v4i12.714
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