Examining the Factors that Influence Firm Performance In Ghana: A GMM And OLS Approach
Keywords:
Firm Performance, Ghana Stock Exchange, Non-Listed Firms, GMM, Panel dataAbstract
This research aims to establish the determinants of firm performance in 15 non-financial Ghanaian companies listed on the Ghana Stock Exchange, over a period of 10 years (2008-2017). The analysis is based on two methods of estimation; two-step system generalized method of moments (GMM) and ordinary least square (OLS) method. The new empirical evidence derived from the results of the analysis reveals that firm size (SIZE), growth (GR) and cash flow ratio (CFR), significantly and positively determines firm’s performance whereas debt to equity (DE) exerted negative influence on firm performance. Robustness test conducted using the three-stage least-squares regression, indicates similar results with the main findings of the study. These results implies that, firms that rely on debt to execute its operations run at a higher risk of insolvency.
References
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Adams, M., & Buckle, M. (2003). The determinants of corporate financial performance in the Bermuda insurance market. Applied Financial Economics, 13(2), 133-143. https://doi.org/10.1080/09603100210105030
Akbar, S., Poletti-Hughes, J., El-Faitouri, R., & Shah, S. Z. A. (2016). More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation. Research in International Business Finance, 38, 417-429. https://doi.org/10.1016/j.ribaf.2016.03.009
Al-Jafari, M. K., & Samman, H. A. (2015). Determinants of profitability: evidence from industrial companies listed on Muscat Securities Market. Rev. Eur. Stud., 7, 303-311. https://doi.org/10.5539/res.v7n11p303
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(2), 277-297. https://doi.org/10.2307/2297968
Asimakopoulos, I., Samitas, A., & Papadogonas, T. (2009). Firm-specific and economy wide determinants of firm profitability: Greek evidence using panel data. Managerial Finance, 35(11), 930-939. https://doi.org/10.1108/03074350910993818
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of management, 17(1), 99-120. https://doi.org/10.1177/014920639101700108
Berger, A. N., & Di Patti, E. B. (2006). Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry. Journal of Banking Finance, 30(4), 1065-1102. https://doi.org/10.1016/j.jbankfin.2005.05.015
Bhatia, S., & Srivastava, A. (2016). Working capital management and firm performance in emerging economies: evidence from India. Management Labour Studies, 41(2), 71-87. https://doi.org/10.1177/0258042X16658733
Boadi, E. K., Antwi, S., & Lartey, V. C. (2013). Determinants of profitability of insurance firms in Ghana. International Journal of Business Social Research, 3(3), 43-50.
Bond, S., Bowsher, C., & Windmeijer, F. (2001). Criterion-based inference for GMM in autoregressive panel data models. Economics Letters, 73(3), 379-388. https://doi.org/10.1016/S0165-1765(01)00507-9
Burja, C. (2011). Factors influencing the Companies' Profitability. Annales Universitatis Apulensis: Series Oeconomica, 13(2), 215-224.
Claver, E., Molina, J., & Tarí, J. (2002). Firm and Industry Effects on Firm Profitability:: a Spanish Empirical Analysis. European Management Journal, 20(3), 321-328. https://doi.org/10.1016/S0263-2373(02)00048-8
Coad, A. (2007). Firm growth: a survey. No. 2007-03. Papers on Economics Evolution available at: http://ideas. repec. org/p/mse/cesdoc/r07024. html.
Davidsson, P., Steffens, P., & Fitzsimmons, J. (2009). Growing profitable or growing from profits: putting the horse in front of the cart? Journal of business venturing, 24(4), 388-406. https://doi.org/10.1016/j.jbusvent.2008.04.003
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), 3970-3983. https://doi.org/10.1016/j.eswa.2013.01.012
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of business finance Accounting, 30(3‐4), 573-588. https://doi.org/10.1111/1468-5957.00008
Dhawan, R. (2001). Firm size and productivity differential: theory and evidence from a panel of US firms. Journal of economic behavior organization, 44(3), 269-293. https://doi.org/10.1016/S0167-2681(00)00139-6
Durnev, A., & Kim, E. H. (2005). To steal or not to steal: Firm attributes, legal environment, and valuation. The Journal of Finance, 60(3), 1461-1493. https://doi.org/10.1111/j.1540-6261.2005.00767.x
Feeny, S. (2000). Determinants of profitability: an empirical investigation using Australian tax entities: Melbourne Institute of Applied Economic and Social Research, Working Paper, 1.
Fitzsimmons, J., Steffens, P., & Douglas, E. (2005). Growth and profitability in small and medium sized Australian firms. Proceedings AGSE Entrepreneurship Exchange, Melbourne. https://doi.org/10.2139/ssrn.1263734
Frank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217-248. https://doi.org/10.1016/S0304-405X(02)00252-0
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. USA: Addison Wesle.: Pearson Higher Education AU.
Goddard, J., Tavakoli, M., & Wilson, J. O. (2005). Determinants of profitability in European manufacturing and services: evidence from a dynamic panel model. Applied Financial Economics, 15(18), 1269-1282. https://doi.org/10.1080/09603100500387139
Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. The quarterly journal of economics, 118(1), 107-156. https://doi.org/10.1162/00335530360535162
Grant, R. M. (1991). The resource-based theory of competitive advantage: implications for strategy formulation. California management review, 33(3), 114-135. https://doi.org/10.2307/41166664
Hansen, L. P. (1982). Large sample properties of generalized method of moments estimators. Econometrica: Journal of the econometric society, 1029-1054. https://doi.org/10.2307/1912775
Henry, D. (2008). Corporate governance structure and the valuation of Australian firms: is there value in ticking the boxes? Journal of Business Finance Accounting, 35(7‐8), 912-942. https://doi.org/10.1111/j.1468-5957.2008.02100.x
Jermias, J. (2008). The relative influence of competitive intensity and business strategy on the relationship between financial leverage and performance. The British Accounting Review 40(1), 71-86. https://doi.org/10.1016/j.bar.2007.11.001
Kaen, F. R., & Baumann, H. D. (2003). Firm size, employees and profitability in US manufacturing industries. Whittemore School of Business and Economics, University of New Hampshire Durham, USA, 1-71. https://doi.org/10.2139/ssrn.382402
Lazăr, S. (2016). Determinants of firm performance: evidence from Romanian listed companies. Review of Economic Business Studies, 9(1), 53-69. https://doi.org/10.1515/rebs-2016-0025
Makhija, M. (2003). Comparing the resource‐based and market‐based views of the firm: empirical evidence from Czech privatization. Strategic Management Journal, 24(5), 433-451. https://doi.org/10.1002/smj.304
Margaretha, F., & Supartika, N. (2016). Factors affecting profitability of small medium enterprises (SMEs) firm listed in Indonesia Stock Exchange. Journal of Economics, Business Management, 4(2), 132-137. https://doi.org/10.7763/JOEBM.2016.V4.379
Markman, G. D., & Gartner, W. B. (2002). Is extraordinary growth profitable? A study of Inc. 500 high–growth companies. Entrepreneurship theory practice, 27(1), 65-75. https://doi.org/10.1111/1540-8520.t01-2-00004
Mathuva, D. (2015). The Influence of working capital management components on corporate profitability. Research Journal of Business Management, 4(1), 1–11. https://doi.org/10.3923/rjbm.2010.1.11
Nunes, P. J. M., Serrasqueiro, Z. M., & Sequeira, T. N. (2009). Profitability in Portuguese service industries: a panel data approach. The Service Industries Journal, 29(5), 693-707. https://doi.org/10.1080/02642060902720188
Obeng-Krampah, D. K. (2018). The Impact of Macroeconomic Factors on Firm Performance. Department of Economics, University of Ghana.
Odusanya, I. A., Yinusa, O. G., & Ilo, B. M. (2018). Determinants of firm profitability in Nigeria: Evidence from dynamic panel models. SPOUDAI-Journal of Economics Business, 68(1), 43-58.
Pratheepan, T. (2014). A Panel Data Analysis of Profitability Determinants: Empirical Results from Sri Lankan Manufacturing Companies. International Journal of Economics, Commerce Management, 2(12), 1-9.
Prempeh, K. B., & Nsiah Asare, E. (2016). The Effect of Debt Policy on Firms Performance: Empirical Evidence from Listed Manufacturing Companies on The Ghana Stock Exchange. " MPRA Paper 75200, University Library of Munich, Germany, 1-12.
Ramasamy, B., Ong, D., & Yeung, M. C. (2005). Firm size, ownership and performance in the Malaysian palm oil industry. Asian Academy of Management Journal of Accounting Finance, 1, 181-104. https://doi.org/10.1002/smj.204
Ramaswamy, K. (2001). Organizational ownership, competitive intensity, and firm performance: An empirical study of the Indian manufacturing sector. Strategic Management Journal, 22(10), 989-998.
Roodman, D. (2009). How to do xtabond2: An introduction to difference and system GMM in Stata. The stata journal, 9(1), 86-136. https://doi.org/10.1177/1536867X0900900106
Salim, M., & Yadav, R. (2012). Capital structure and firm performance: Evidence from Malaysian listed companies. Procedia-Social Behavioral Sciences 65, 156-166. https://doi.org/10.1016/j.sbspro.2012.11.105
Samiloglu, F., & Demirgunes, K. (2008). The effect of working capital management on firm profitability: Evidence from Turkey. The International journal of applied Economics Finance, 2(1), 44-50. https://doi.org/10.3923/ijaef.2008.44.50
Seelanatha, L. (2011). Determinants of firms’ performance: Some Chinese evidence. Investment Management Financial Innovation, 8(3), 28-38. https://doi.org/10.1177/1536867X0900900106
Slater, S. F., & Olson, E. M. (2002). A fresh look at industry and market analysis. Business Horizons, 45(1), 15-22. https://doi.org/10.1016/S0007-6813(02)80005-2
Stierwald, A. (2009). Determinants of firm profitability-the effect of productivity and its persistence. Melbourne Institute of Applied Economic Social Research, 25, 1-23. https://doi.org/10.1002/smj.4250120907
Tallman, S. B. (1991). Strategic management models and resource‐based strategies among MNEs in a host market. Strategic Management Journal, 12(S1), 69-82.
Vătavu, S. (2014). The Determinants of Profitability in Companies Listed on the Bucharest Stock Exchange. Annals of the University of Petrosani Economics, 14(1), 329-338.
Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105(3), 581-606. https://doi.org/10.1016/j.jfineco.2012.03.005
Yazdanfar, D. (2013). Profitability determinants among micro firms: evidence from Swedish data. International Journal of Managerial Finance, 9(2), 150-160. https://doi.org/10.1108/17439131311307565
Adams, M., & Buckle, M. (2003). The determinants of corporate financial performance in the Bermuda insurance market. Applied Financial Economics, 13(2), 133-143. https://doi.org/10.1080/09603100210105030
Akbar, S., Poletti-Hughes, J., El-Faitouri, R., & Shah, S. Z. A. (2016). More on the relationship between corporate governance and firm performance in the UK: Evidence from the application of generalized method of moments estimation. Research in International Business Finance, 38, 417-429. https://doi.org/10.1016/j.ribaf.2016.03.009
Al-Jafari, M. K., & Samman, H. A. (2015). Determinants of profitability: evidence from industrial companies listed on Muscat Securities Market. Rev. Eur. Stud., 7, 303-311. https://doi.org/10.5539/res.v7n11p303
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(2), 277-297. https://doi.org/10.2307/2297968
Asimakopoulos, I., Samitas, A., & Papadogonas, T. (2009). Firm-specific and economy wide determinants of firm profitability: Greek evidence using panel data. Managerial Finance, 35(11), 930-939. https://doi.org/10.1108/03074350910993818
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of management, 17(1), 99-120. https://doi.org/10.1177/014920639101700108
Berger, A. N., & Di Patti, E. B. (2006). Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry. Journal of Banking Finance, 30(4), 1065-1102. https://doi.org/10.1016/j.jbankfin.2005.05.015
Bhatia, S., & Srivastava, A. (2016). Working capital management and firm performance in emerging economies: evidence from India. Management Labour Studies, 41(2), 71-87. https://doi.org/10.1177/0258042X16658733
Boadi, E. K., Antwi, S., & Lartey, V. C. (2013). Determinants of profitability of insurance firms in Ghana. International Journal of Business Social Research, 3(3), 43-50.
Bond, S., Bowsher, C., & Windmeijer, F. (2001). Criterion-based inference for GMM in autoregressive panel data models. Economics Letters, 73(3), 379-388. https://doi.org/10.1016/S0165-1765(01)00507-9
Burja, C. (2011). Factors influencing the Companies' Profitability. Annales Universitatis Apulensis: Series Oeconomica, 13(2), 215-224.
Claver, E., Molina, J., & Tarí, J. (2002). Firm and Industry Effects on Firm Profitability:: a Spanish Empirical Analysis. European Management Journal, 20(3), 321-328. https://doi.org/10.1016/S0263-2373(02)00048-8
Coad, A. (2007). Firm growth: a survey. No. 2007-03. Papers on Economics Evolution available at: http://ideas. repec. org/p/mse/cesdoc/r07024. html.
Davidsson, P., Steffens, P., & Fitzsimmons, J. (2009). Growing profitable or growing from profits: putting the horse in front of the cart? Journal of business venturing, 24(4), 388-406. https://doi.org/10.1016/j.jbusvent.2008.04.003
Delen, D., Kuzey, C., & Uyar, A. (2013). Measuring firm performance using financial ratios: A decision tree approach. Expert Systems with Applications, 40(10), 3970-3983. https://doi.org/10.1016/j.eswa.2013.01.012
Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of business finance Accounting, 30(3‐4), 573-588. https://doi.org/10.1111/1468-5957.00008
Dhawan, R. (2001). Firm size and productivity differential: theory and evidence from a panel of US firms. Journal of economic behavior organization, 44(3), 269-293. https://doi.org/10.1016/S0167-2681(00)00139-6
Durnev, A., & Kim, E. H. (2005). To steal or not to steal: Firm attributes, legal environment, and valuation. The Journal of Finance, 60(3), 1461-1493. https://doi.org/10.1111/j.1540-6261.2005.00767.x
Feeny, S. (2000). Determinants of profitability: an empirical investigation using Australian tax entities: Melbourne Institute of Applied Economic and Social Research, Working Paper, 1.
Fitzsimmons, J., Steffens, P., & Douglas, E. (2005). Growth and profitability in small and medium sized Australian firms. Proceedings AGSE Entrepreneurship Exchange, Melbourne. https://doi.org/10.2139/ssrn.1263734
Frank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217-248. https://doi.org/10.1016/S0304-405X(02)00252-0
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. USA: Addison Wesle.: Pearson Higher Education AU.
Goddard, J., Tavakoli, M., & Wilson, J. O. (2005). Determinants of profitability in European manufacturing and services: evidence from a dynamic panel model. Applied Financial Economics, 15(18), 1269-1282. https://doi.org/10.1080/09603100500387139
Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. The quarterly journal of economics, 118(1), 107-156. https://doi.org/10.1162/00335530360535162
Grant, R. M. (1991). The resource-based theory of competitive advantage: implications for strategy formulation. California management review, 33(3), 114-135. https://doi.org/10.2307/41166664
Hansen, L. P. (1982). Large sample properties of generalized method of moments estimators. Econometrica: Journal of the econometric society, 1029-1054. https://doi.org/10.2307/1912775
Henry, D. (2008). Corporate governance structure and the valuation of Australian firms: is there value in ticking the boxes? Journal of Business Finance Accounting, 35(7‐8), 912-942. https://doi.org/10.1111/j.1468-5957.2008.02100.x
Jermias, J. (2008). The relative influence of competitive intensity and business strategy on the relationship between financial leverage and performance. The British Accounting Review 40(1), 71-86. https://doi.org/10.1016/j.bar.2007.11.001
Kaen, F. R., & Baumann, H. D. (2003). Firm size, employees and profitability in US manufacturing industries. Whittemore School of Business and Economics, University of New Hampshire Durham, USA, 1-71. https://doi.org/10.2139/ssrn.382402
Lazăr, S. (2016). Determinants of firm performance: evidence from Romanian listed companies. Review of Economic Business Studies, 9(1), 53-69. https://doi.org/10.1515/rebs-2016-0025
Makhija, M. (2003). Comparing the resource‐based and market‐based views of the firm: empirical evidence from Czech privatization. Strategic Management Journal, 24(5), 433-451. https://doi.org/10.1002/smj.304
Margaretha, F., & Supartika, N. (2016). Factors affecting profitability of small medium enterprises (SMEs) firm listed in Indonesia Stock Exchange. Journal of Economics, Business Management, 4(2), 132-137. https://doi.org/10.7763/JOEBM.2016.V4.379
Markman, G. D., & Gartner, W. B. (2002). Is extraordinary growth profitable? A study of Inc. 500 high–growth companies. Entrepreneurship theory practice, 27(1), 65-75. https://doi.org/10.1111/1540-8520.t01-2-00004
Mathuva, D. (2015). The Influence of working capital management components on corporate profitability. Research Journal of Business Management, 4(1), 1–11. https://doi.org/10.3923/rjbm.2010.1.11
Nunes, P. J. M., Serrasqueiro, Z. M., & Sequeira, T. N. (2009). Profitability in Portuguese service industries: a panel data approach. The Service Industries Journal, 29(5), 693-707. https://doi.org/10.1080/02642060902720188
Obeng-Krampah, D. K. (2018). The Impact of Macroeconomic Factors on Firm Performance. Department of Economics, University of Ghana.
Odusanya, I. A., Yinusa, O. G., & Ilo, B. M. (2018). Determinants of firm profitability in Nigeria: Evidence from dynamic panel models. SPOUDAI-Journal of Economics Business, 68(1), 43-58.
Pratheepan, T. (2014). A Panel Data Analysis of Profitability Determinants: Empirical Results from Sri Lankan Manufacturing Companies. International Journal of Economics, Commerce Management, 2(12), 1-9.
Prempeh, K. B., & Nsiah Asare, E. (2016). The Effect of Debt Policy on Firms Performance: Empirical Evidence from Listed Manufacturing Companies on The Ghana Stock Exchange. " MPRA Paper 75200, University Library of Munich, Germany, 1-12.
Ramasamy, B., Ong, D., & Yeung, M. C. (2005). Firm size, ownership and performance in the Malaysian palm oil industry. Asian Academy of Management Journal of Accounting Finance, 1, 181-104. https://doi.org/10.1002/smj.204
Ramaswamy, K. (2001). Organizational ownership, competitive intensity, and firm performance: An empirical study of the Indian manufacturing sector. Strategic Management Journal, 22(10), 989-998.
Roodman, D. (2009). How to do xtabond2: An introduction to difference and system GMM in Stata. The stata journal, 9(1), 86-136. https://doi.org/10.1177/1536867X0900900106
Salim, M., & Yadav, R. (2012). Capital structure and firm performance: Evidence from Malaysian listed companies. Procedia-Social Behavioral Sciences 65, 156-166. https://doi.org/10.1016/j.sbspro.2012.11.105
Samiloglu, F., & Demirgunes, K. (2008). The effect of working capital management on firm profitability: Evidence from Turkey. The International journal of applied Economics Finance, 2(1), 44-50. https://doi.org/10.3923/ijaef.2008.44.50
Seelanatha, L. (2011). Determinants of firms’ performance: Some Chinese evidence. Investment Management Financial Innovation, 8(3), 28-38. https://doi.org/10.1177/1536867X0900900106
Slater, S. F., & Olson, E. M. (2002). A fresh look at industry and market analysis. Business Horizons, 45(1), 15-22. https://doi.org/10.1016/S0007-6813(02)80005-2
Stierwald, A. (2009). Determinants of firm profitability-the effect of productivity and its persistence. Melbourne Institute of Applied Economic Social Research, 25, 1-23. https://doi.org/10.1002/smj.4250120907
Tallman, S. B. (1991). Strategic management models and resource‐based strategies among MNEs in a host market. Strategic Management Journal, 12(S1), 69-82.
Vătavu, S. (2014). The Determinants of Profitability in Companies Listed on the Bucharest Stock Exchange. Annals of the University of Petrosani Economics, 14(1), 329-338.
Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105(3), 581-606. https://doi.org/10.1016/j.jfineco.2012.03.005
Yazdanfar, D. (2013). Profitability determinants among micro firms: evidence from Swedish data. International Journal of Managerial Finance, 9(2), 150-160. https://doi.org/10.1108/17439131311307565
Published
2021-01-28
How to Cite
Dodoo, R., Tetteh Donkor, D. ., & Appiah, M. (2021). Examining the Factors that Influence Firm Performance In Ghana: A GMM And OLS Approach: Array. The Journal of Accounting and Management, 11(1). Retrieved from https://dj.univ-danubius.ro/index.php/JAM/article/view/349
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