AUNBE 2021 - Presentation

Microeconomic Factors Impacting Profitability
of listed Industrial and Services Firms in the

Philippines: An Analysis
Jan Marie Claire Edra Ahmed Meandahawi

De La Salle University
April 16, 2021
Edra & Meandahawi (DLSU) 2021 AUN-BE Conference April 16, 2021 1 / 29
Problem Rationale
Outline of Presentation
1 Problem Rationale
2 The Framework of the Study
3 The Research Method
4 Results and Discussion
5 Summary, Conclusion and Recommendations
Problem Rationale
Firm Profitability
Profitable companies are sources of sustainable economic growth

as they provide job opportunities, foster innovation, and pay
taxes.
Profitability of a company describes the ability of the

organization to generate revenue over a certain period.
Return on equity (ROE) is a profitability ratio which reflects the

company’s capability to increase profits without adding new
equity into the business.
Problem Rationale
Philippines’ Industrial and Services Sectors
Regarding investments and competitiveness, the Philippines’

economic performance is falling behind its neighbors.
Industrial and services sectors are amongst the Philippine

economy’s most vital sectors.
Empowering the industrial and services sectors to contribute

significantly to Philippines’ economic progress involves
addressing several constraints, including how firms belonging in
these sectors can increase their profitability.
Problem Rationale
Factors affecting Firm Profitability
Firm-specific factors
• Capital structure
Measure of Profitability
• Liquidity
• ROE of industrial and
• Sales growth
services companies
• Firm size
• Firm age
Problem Rationale
Statement of the Problem
The researchers would like to answer the following question in the

course of the study:
Does capital structure, liquidity, sales growth, firm size, and firm
age significantly affect the profitability of listed industrial and
services firms in the Philippines?
Problem Rationale
Research Objectives
The objectives of the study are:
To identify the determinants that significantly affect ROE of

firms
To determine which of the factors positively or negatively affect

ROE of firms
To contribute to the literature regarding the impact of

microeconomic factors on profitability of Philippine industrial
and services companies
Problem Rationale
Hypotheses
H1 : Capital structure significantly affects the ROE of listed industrial
and services firms in the Philippines.
H2 : Liquidity significantly affects the ROE of listed industrial and

services firms in the Philippines.
H3 : Sales growth significantly affects the ROE of listed industrial and

H4 : Firm age significantly affects the ROE of listed industrial and

H5 : Firm size significantly affects the ROE of listed industrial and

Problem Rationale
Significance of the Study
Contributes to the existing body of knowledge by identifying

the impact of certain microeconomic factors on the profitability
of Philippine companies
Serves as reference for future researchers regarding the factors

affecting firm profitability
Provides guidelines to firms on suitable business strategies

that managers must consider to attain their company’s
profitability goals
Problem Rationale
Scope and Limitations
(1) The analysis of this research is mainly focused on the impact of

microeconomic factors to the profitability of industrial and
services companies listed in the PSE.
(2) The study covered five selected microeconomic variables namely,

capital structure, liquidity, sales growth, firm size, and firm age.
(3) The data utilized is secondary data which is within the time
frame of 2008 - 2019.
The Framework of the Study
1 Problem Rationale
Theoretical Framework
Firm-specific factors Supporting theories

Capital Structure MM Theory, Trade-off theory,
Pecking-order theory
Liquidity Trade-off theory, Pecking-order theory
Sales Growth Theory of firm growth
Firm size Economies of scale
Firm age Theory of learning by doing, Theory of
structural inertia
Conceptual Framework
The Research Method
1 Problem Rationale
The Research Method
Research Design
Secondary data was used in this study in which the financial

statements and company profile of industrial and services companies
listed in the PSE were used for the computation of financial ratios,
growth, firm size, and firm age.
The data was obtained from Reuters and PSE Electronic

Disclosure Generation Technology (PSE Edge) database.
Panel regression analysis was done to determine the

microeconomic factors which have significant impact on the ROE of
sampled Philippine industrial and services companies.
Gretl software was used in conducting the statistical tests.
The Research Method
Research Design
Variables Description
Net Income
ROE
Shareholder’s Equity
Total Debt
Capital Structure
Total Shareholder’s Equity
Current Assets
Current Ratio
Current Liabilities
Net sales for the current period - Net sales for the prior period
Sales Growth Net sales for the prior period
Firm size Natural logarithm of total assets

Firm age Current year − Year of incorporation
The Research Method
Sampling Method
The sampling method used is purposive sampling, such that the

specific criteria applied consist of:
(a) Industrial and services firms listed in the PSE for the years
2008-2019
(b) Industrial and services firms that published complete financial

statements for the years 2008-2019
Results and Discussion
1 Problem Rationale
Descriptive Statistics
Regression Model
The study employed the following model:
LROEi ,t = αi + β1 CSi ,t + β2 CURRENTi ,t + β3 GROWTHi ,t
+ β4 SIZEi ,t + β5 AGEi ,t + i ,t
where
• LROE is the natural logarithm of ROE;
• CS is capital structure;
• CURRENT is current ratio;
• GROWTH is sales growth;
• SIZE is firm size;
• AGE is firm age;
• is the error term;
• α is unobserved time-invariant individual effect;
• i is the company selected and t is time series.
Panel Model Diagnostics

Test for Multicollinearity

Breusch-Pagan Test

Hausman Test
Regression Results
Summary, Conclusion and Recommendations
1 Problem Rationale
Summary
Dependent Variables Effect on ROE

Capital Structure Negative
Current Ratio Negative
Sales Growth Positive
Firm size No significant effect
Firm age Negative
Conclusion
It is concluded that capital structure, liquidity, sales growth, and

firm age are the microeconomic factors significantly impacting
profitability of listed industrial and services firms in the
Philippines.
Recommendations
Due to the significant impact of these factors to profitability, it

is essential that the listed industrial and services firms in the
Philippines maintain an appropriate capital structure,
increase revenue streams, establish an efficient liquidity
management system, and enhance innovation to cope with
the rapidly changing market conditions and boost financial
efficiency.
Thank you!

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Microeconomic Factors Impacting Profitability

of listed Industrial and Services Firms in the

Jan Marie Claire Edra Ahmed Meandahawi

April 16, 2021

2 The Framework of the Study

3 The Research Method

4 Results and Discussion

5 Summary, Conclusion and Recommendations

Profitable companies are sources of sustainable economic growth

Profitability of a company describes the ability of the

Return on equity (ROE) is a profitability ratio which reflects the

Philippines’ Industrial and Services Sectors

Regarding investments and competitiveness, the Philippines’

Industrial and services sectors are amongst the Philippine

Empowering the industrial and services sectors to contribute

Factors affecting Firm Profitability

Statement of the Problem

The researchers would like to answer the following question in the

The objectives of the study are:

To identify the determinants that significantly affect ROE of

To determine which of the factors positively or negatively affect

To contribute to the literature regarding the impact of

H2 : Liquidity significantly affects the ROE of listed industrial and

H3 : Sales growth significantly affects the ROE of listed industrial and

H4 : Firm age significantly affects the ROE of listed industrial and

H5 : Firm size significantly affects the ROE of listed industrial and

Significance of the Study

Contributes to the existing body of knowledge by identifying

Serves as reference for future researchers regarding the factors

Provides guidelines to firms on suitable business strategies

Scope and Limitations

(1) The analysis of this research is mainly focused on the impact of

(2) The study covered five selected microeconomic variables namely,

2 The Framework of the Study

3 The Research Method

4 Results and Discussion

5 Summary, Conclusion and Recommendations

Firm-specific factors Supporting theories

2 The Framework of the Study

3 The Research Method

4 Results and Discussion

5 Summary, Conclusion and Recommendations

Secondary data was used in this study in which the financial

The data was obtained from Reuters and PSE Electronic

Panel regression analysis was done to determine the

Gretl software was used in conducting the statistical tests.

Firm size Natural logarithm of total assets

The sampling method used is purposive sampling, such that the

(b) Industrial and services firms that published complete financial

2 The Framework of the Study

3 The Research Method

4 Results and Discussion

5 Summary, Conclusion and Recommendations

Panel Model Diagnostics

Panel Model Diagnostics

Panel Model Diagnostics

2 The Framework of the Study

3 The Research Method

4 Results and Discussion

5 Summary, Conclusion and Recommendations

Dependent Variables Effect on ROE

It is concluded that capital structure, liquidity, sales growth, and