Sectoral and Firm-Level Determinants of Profitability: A Multilevel Approach

Abstract

The paper aimed to contribute to the literature on the determinants of firm profitability, from the perspective of the Czech economy. We followed a multilevel/hierarchical approach towards the analysis of the sectoral and firm-level determinants of the profitability of companies operating in the Czech food processing industry during years 2005-2012 (622 Firms in 10 Sectors). We assessed an impact of industry (i.e. market concentration, sector growth rate and growth rate of imports) and firm-level characteristics (i.e. market share, firm age, firm size, number of employees, debt/equity ratio and short-term risk) on the return on assets (ROA). Surprisingly, there were no substantial differences between the separate models for industry and firm-level determinants and a combined one. We found a positive impact of market concentration and market share and a negative effect of age and risk-taking behaviour on a firm profitability. Based on these findings, managers in the Czech food and drink industry should pay more attention to the debt policy.

Keywords

• firm profitability
• return on assets (ROA)
• industry and firm effects
• multilevel analysis
• Czech food and drink industry