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Factors affecting profitability in Malaysia

Author

Listed:
  • Ali Saleh Alarussi
  • Sami Mohammed Alhaderi

Abstract

Purpose - The purpose of this paper is to examine the factors affecting profitability in Malaysian-listed companies. It has been argued that profitability is the main pillar for any company to survive in the long run. Although profitability is the primary goal of all business ventures, scant attention has been paid to the factors that affect profitability in developing countries. This study investigates the factors affecting profitability in Malaysian-listed companies. Design/methodology/approach - This research is based on five independent variables that were empirically examined for their relationship with profitability. These variables are: firm size (as measured by total sales), working capital (WC), company efficiency (assets turnover ratio), liquidity (current ratio) and leverage (debt equity ratio and leverage ratio). Data of 120 companies listed on Bursa Malaysia covering the period from 2012 to 2014 were extracted from companies’ annual reports. Pooled ordinary least squares regression and fixed-effects were used to analyze the data. Findings - The findings show a strong positive relationship between firm size (total sales), WC, company efficiency (assets turnover ratio) and profitability. The results also show a negative relationship between both debt equity ratio and leverage ratio and profitability. Liquidity (current ratio) has no significant relationship with profitability. Research limitations/implications - Due to the time limitation, the data includes only 120 companies listed in bursa Malaysia and covers the period from 2012 to 2014. Practical implications - These results benefit internal users (such as mangers, shareholders and employees). They can realize the determinants of enhancing the profitability of their company after the depreciation of the Malaysian currency and therefore concentrate more on the factors that enhance their companies’ profitability. On the other side, other external users (such as investors, creditors, new established companies, tax authority) also may get advantages of these results. It is clear that those users concern about the profitability of companies and the determinants of their profitability after the currency’s depreciation. Originality/value - This study differs than previous studies in many ways: first, it focuses on non-financial listed companies in Malaysia. Previous studies have concentrated on companies in the financial sector, such as banking and financial institutions or on industrial organizations. Second, this study analyzes the data in companies’ annual reports for a three-year period from 2012 to 2014. During this period, the economy in Malaysia was fluctuating due to currency depreciation. Third, the study used both return on equity and earnings per share as indicators of profitability. Fourth, the results of the study provide empirical evidence that large size firms with efficiently managed assets can improve operating income and ultimately enhance profitability. Last but not least, this study applies the resource-based theory and the trade-off theory.

Suggested Citation

  • Ali Saleh Alarussi & Sami Mohammed Alhaderi, 2018. "Factors affecting profitability in Malaysia," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 45(3), pages 442-458, August.
  • Handle: RePEc:eme:jespps:jes-05-2017-0124
    DOI: 10.1108/JES-05-2017-0124
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    Citations

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    Cited by:

    1. Erik Syawal Alghifari & Ardi Gunardi & Jaja Suteja & Indah Khoerun Nisa & Zalfa Amarananda, 2022. "Investment Decisions of Energy Sector Companies on the Indonesia Stock Exchange: Theory and Evidence," International Journal of Energy Economics and Policy, Econjournals, vol. 12(6), pages 73-79, November.
    2. Ega Annisa Rizti & Berly Martawardaya, 2022. "Does It Pay to be Good? The Performance of Indonesian Green Companies from 2009–2018," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 68, pages 17-36, Juni.
    3. Hossein Tarighi & Zeynab Nourbakhsh Hosseiny & Maryam Akbari & Elaheh Mohammadhosseini, 2023. "The Moderating Effect of the COVID-19 Pandemic on the Relation between Corporate Governance and Firm Performance," JRFM, MDPI, vol. 16(7), pages 1-43, June.
    4. Lanlan Li & Lu Zhang & Xiudong Wang, 2024. "Research on the Dynamic Evaluation of the Competitiveness of Listed Seed Enterprises in China," Agriculture, MDPI, vol. 14(8), pages 1-24, July.
    5. Amjad Wajdi Noor Ahmad Kamal & Ameer Irfhan Arshad & Norliza Che-Yahya & Siti Sarah Alyasa-Gan, 2023. "Performance of Shariah vs Non-Shariah Firms: A Study of Manufacturing Sector in Malaysia," Information Management and Business Review, AMH International, vol. 15(1), pages 149-163.
    6. Ali Saleh Ahmed Alarussi, 2021. "Effectiveness, Efficiency and Executive Directors’ Compensation Among Listed Companies in Malaysia," SAGE Open, , vol. 11(4), pages 21582440211, October.
    7. Larissa Batrancea, 2021. "The Nexus between Financial Performance and Equilibrium: Empirical Evidence on Publicly Traded Companies from the Global Financial Crisis Up to the COVID-19 Pandemic," JRFM, MDPI, vol. 14(5), pages 1-12, May.
    8. Larissa Batrancea, 2021. "Determinants Of Performance During Covid-19 Pandemic: An Empirical Research On Pharmaceutical Companies Listed On The Bucharest Stock Exchange," Management Strategies Journal, Constantin Brancoveanu University, vol. 51(1), pages 136-142.
    9. Wetzel, Philipp & Hofmann, Erik, 2019. "Supply chain finance, financial constraints and corporate performance: An explorative network analysis and future research agenda," International Journal of Production Economics, Elsevier, vol. 216(C), pages 364-383.
    10. Mercè Sala‐Ríos, 2024. "What are the determinants affecting cooperatives’ profitability? Evidence from Spain," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 95(1), pages 85-111, March.
    11. Khorshed Alam & Mohammad Afshar Ali & Michael Erdiaw-Kwasie & Md Shahiduzzaman & Eswaran Velayutham & Peter A. Murray & Retha Wiesner, 2022. "Impact of ICTs on Innovation and Performance of Firms: Do Start-ups, Regional Proximity and Skills Matter?," Sustainability, MDPI, vol. 14(10), pages 1-18, May.
    12. Eissa A. Al-Homaidi & Najib H.S. Farhan & Waleed M. Alahdal & Amgad S.D. Khaled & Moatasem M. Qaid, 2021. "Factors affecting the profitability of Indian listed firms: a panel data approach," International Journal of Business Excellence, Inderscience Enterprises Ltd, vol. 23(1), pages 1-17.
    13. Muhammad Wahyuddin Abdullah & Rika Musriani & Alim Syariati & Hadriana Hanafie, 2020. "Carbon Emission Disclosure in Indonesian Firms: The Test of Media-exposure Moderating Effects," International Journal of Energy Economics and Policy, Econjournals, vol. 10(6), pages 732-741.
    14. Indah Fajarini Sri Wahyuningrum & Shanty Oktavilia & Sri Utami, 2022. "The Effect of Company Characteristics and Gender Diversity on Disclosures Related to Sustainable Development Goals," Sustainability, MDPI, vol. 14(20), pages 1-13, October.
    15. Aakash Jahangir & Amna Shabbir, 2023. "What Determines the Profitability of Business Firms in Pakistan," Business Management and Strategy, Macrothink Institute, vol. 14(2), pages 71-84, December.
    16. Sakchai Naknok, 2022. "Firm Performance Indicators as a Fundamental Analysis of Stocks and a Determinant of a Firm’s Operation," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 190-213.
    17. Jacek Jaworski & Leszek Czerwonka, 2021. "Meta-study on the relationship between profitability and liquidity of enterprises in macroeconomic and institutional environment," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 48(2), pages 233-246, June.
    18. Imani Mokhtar & Ismah Osman & Fatimah Setapa & Nur Afizah Muhamad Arifin & Roslina Mohamad Shafi & Ruhaini Muda, 2023. "Capital Structure–Firm Performance Nexus: The Moderating Effect of Board Independence," Information Management and Business Review, AMH International, vol. 15(4), pages 38-47.
    19. Zhefan Piao & Kun Yang & Ning Su & Zihan Zheng, 2024. "Network working capital management, supply chain concentration, and corporate performance of focal companies," Operations Management Research, Springer, vol. 17(3), pages 982-995, September.

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