Relationship between Corporate Characteristics and Profitability

RELATIONSHIP BETWEEN CORPORATE CHARACTERISTICS AND PROFITABILITY
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Relationship between corporate characteristics and profitability.
Name
Institutional affiliation
Author’s note

RELATIONSHIP BETWEEN CORPORATE CHARACTERISTICS AND PROFITABILITY
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Abstract
The focus of this study is to investigate the relationship between
corporate characteristics and their overall profitability. Any corporate
organisation’s performance is fundamental factor in not just the
enhancement of its own market value but also leads the overall
development and growth of the entire industry. Such an influence is
ultimately critical for overall economic prosperity of any given economy. It
is equally important to note that corporations do operate in a system
which is open enough for them to receive in puts from the surrounding
environment and subsequently transform the inputs through internally
designed internal processes. The transformation processes is followed by
the out distribution back into the environment. The output distributed
could either be in inform of services or products. On the basis of the
above observation therefore, it is evident that the environment in which a
corporation operates has a significant impact on the performance of any
corporation. The implication for this kind of relationship therefore is that
managers and owners of corporations must undertake an analysis of the
potential weaknesses and strengths associated with the environment in
which they operate to be able to overcome the associated operational
challenges. In the same manner, it is required for the corporate managers
to equally think of the ways or mechanisms they can employ to ensure
that they combat external threats while taking maximum advantage of
the opportunities in the event that they arise. Such an operational
mechanism would help the company to hold a competitive position
against other rival corporations. For this paper, multivariate regression
analysis model was used to establish the impact that corporation
characteristics have on the firm profitability. Stata statistical software was
used for analysis to obtain the results.

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Table of Contents
Abstract............................................................................................................... 2
Relationship between corporate characteristics and profitability............6
Background of the study.................................................................................. 6
Corporate characteristics................................................................................. 7
Corporate profitability....................................................................................... 9
Aims of the project.......................................................................................... 10
Research topic.................................................................................................. 10
Research Objective.......................................................................................... 10
Research Questions......................................................................................... 10
Chapter Two: Literature Review....................................................................12
Introduction...................................................................................................... 12
Theoretical Review........................................................................................... 12
Resource based theory.................................................................................... 12
Trade off Theory............................................................................................... 14
Organizational Theory..................................................................................... 15
Factors that determine the performance of a firm....................................16
Size of the firm................................................................................................. 16
Firm age............................................................................................................. 17
Liquidity............................................................................................................. 18
Tangible assets................................................................................................. 19
Leverage............................................................................................................ 19
Summary of the literature review.................................................................25
Chapter Three: Research Methodology........................................................25
Introduction...................................................................................................... 25
Research Design............................................................................................... 25
The target population..................................................................................... 26

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Sample Size and Sampling Techniques........................................................26
Data Collection................................................................................................. 26
Results............................................................................................................... 27
Empirical............................................................................................................ 37
Empirical analysis............................................................................................ 37
Literature........................................................................................................... 41
Data analysis.................................................................................................... 43
Introduction...................................................................................................... 43
Correlation analysis......................................................................................... 44
Multicollinearity test....................................................................................... 45
Future research suggestion...........................................................................48
Recommendations for practice and policy...................................................49
References........................................................................................................ 50
List of tables
Table 1: Descriptive Statistics of the Regression Variables.......................27
Table 2: correlation matrix........................................................................28
Table 3: Multiple collinearity test result....................................................29
Table 4: Regression Results......................................................................30
Table 5: Descriptive statistics...................................................................34
Table 6: Collinearity statistics...................................................................35
Table 7: Correlation matrix........................................................................35

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List of figures
Figure 1: Conceptual frame work..............................................................24

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Relationship between corporate characteristics and profitability.
Background of the study.
A tactical implementation of the corporation’s strategic plans can aid the
company’s capacity to attain a competitive position edge in relation to its
rival companies. The corporation can however only be able to achieve the
above competitive edge or position only if they are able to sufficiently
utilise their internal strength. By making use of such internal strengths, a
corporation would be able to attain optimal returns attained from the
opportunities and also being able to overcome the internal weaknesses as
well as external threats. The choice as well as strategies for
implementation are to some extent influenced by the corporate
characteristics which ultimately influence the profitability of a given
corporation. Corporation characteristics are defined as the managerial as
well as demographic variables associated with the value of assets,
technological capabilities, information as well as processes associated
with a given company. Some corporate characteristics such as the human
capital, physical factors as well as organizational capital are in most cases

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likely to play a vital role in terms helping a certain company to remain as
competitive as possible within their operational environments. The
profitability of a given company is evidently demonstrated within the
financial statements of a corporation. They are also demonstrated through
the product markets as well as the returns given to the shareholders (Li
and Hwang, 2011). To be in a position of effectively determining the
performance of a given organisation, management would be required to
make an evaluation of the extent to which the goals and objectives of the
organisation have been attained. There are a number of stakeholders that
always maintain a keen interest regarding the profitability as well as the
overall business performance of a given entity because of their business
interests. It is important to point out that the performance of a given
organisation has an impact on the overall growth of the economy. The
level of national economic contribution associated with the profitability of
a given organisation can be measured through the GDP values within a
given economy. In the UK for example, the GDP has grown from -4.2% in
2009 or 1.8% in 2017. Such a growth in the GDP values can be attributed
to superior performance in the retail, wholesale, manufacturing as well as
construction sectors within the national economy. This clearly
demonstrates that some corporations were marked with an enhanced
performance in comparison to others even if they were all operating under
the same economic conditions. To that end, even though there are some
variations in terms of organizational structures as well as company
structures amongst these corporate s, the need to understand the factors
impacting this kind of performance is fundamental importance
(Hartikayanti etal, 2016).
Corporate characteristics
Corporate characteristics are defined as the demographic as well as
managerial variables made up of a firm’s internal environment. The
variables which make up the corporate characteristics include the
information capabilities and knowledge as well as processes associated
with a given business entity. This research study will focus on evaluating

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the effects associated with corporate size, leverage, liquidity tangible
assets as well as age on the profitability of a given corporation. Leverage
refers to the debt financed part of a firm’s capital structure. Organisations
that have debts within their capital structure are categorised as being
leveraged. Corporations which are highly leveraged are in a better
position to lower their free cash flows at the management’s disposal. This
is of huge benefit because it reduces the potentialities for embezzlements
of the funds while improving the corporation’s desire to improve its
efficiency. The size of any corporation can be measured through its asset
base, the sales value, as well as the amount that has been invested in
capital. The amount that has been invested and the sales volumes can
help in terms of the classification of the corporation as either small or big
(Dong, etal. 2012). Huge corporations do enjoy the economies of scale
associated with their enormous sizes. This kind of advantage helps to
enhance the big corporations’ profitability particularly when compared to
the smaller corporations. As far as corporate age is concerned, it entails
the amount of time in terms of the number of years that a corporation has
been in existence and in operation. The measurement for corporate age is
done in terms of years the organisation has been operating (Jonathan and
Peter, 2013). The older corporations are entrenched within the
environment and because of that they are more active within the market
when compared to the new corporations within the market. There is a
positive relationship between corporate profitability and age. He further
explained that the older corporations do grow at a much faster rate when
compared to the younger organisations. In the same manner, the concept
of liquidity is concerned with the ability of the organisation to meet its
present liabilities as and when they are due (Renato, 2010). It is
concerned with the measurement of the business’s ability to meet the
short term debts through the current liquid asset base. Bhunia, Bagach
and Khamrui, (2012) tested the accuracy of the business rations as a
parameter for establishing the liquidity of the business and concluded that
absolute liquid ratio provide better accuracy and precision compared to
current ratio as well as the liquid ratio. Similarly, it is asserted through the