The elements determining the profitability of companies have warranted special attention over time. The levels of rising debt, increased concerns for liquidity and risks of bankruptcy have impacted the revenue of manufacturing sector companies in general and service sector companies in particular. In this study, an attempt has been made to study the financial health of companies belonging to Indian telecom industry. For this purpose, a balanced panel dataset of five Indian telecom companies listed on National Stock Exchange (NSE) has been used to examine the determinants of profitability over the period of 2004-2017. Profitability has been taken as an explained variable whereas size, leverage, liquidity, non-debt tax shield (NDTS), tangibility, growth opportunities and bankruptcy probability (Altman Z-score) have been considered as explanatory variables. The findings of the study reveal that the size and growth have a direct relationship with profitability, whereas the leverage has an inverse relationship. Tangibility, NDTS, liquidity and Z-score indicate insignificant impact on profitability.
KPMG (2009) The Indian Telecom Success Story. https://www.kpmg.de/docs/The_Indian_Telecom_Success_Story.pdf
Goddard, J., Tavakoli, M. and Wilson, J.O. (2005) Determinants of Profitability in European Manufacturing and Services: Evidence from a Dynamic Panel Model. Applied Financial Economics, 15, 1269-1282. https://doi.org/10.1080/09603100500387139
Adams, M. and Buckle, M. (2003) The Determinants of Corporate Financial Performance in the Bermuda Insurance Market. Applied Financial Economics, 13, 133-143. https://doi.org/10.1080/09603100210105030
Phillips, P.A. and Sipahioglu, M.A. (2004) Performance Implications of Capital Structure: Evidence from Quoted UK Organisations with Hotel Interests. The Service Industries Journal, 24, 31-51. https://doi.org/10.1080/0264206042000276829
Asimakopoulos, I., Samitas, A. and Papadogonas, T. (2009) Firm-Specific and Economy Wide Determinants of Firm Profitability: Greek Evidence Using Panel Data. Managerial Finance, 35, 930-939. https://doi.org/10.1108/03074350910993818
McDonald, J.T. (1999) The Determinants of Firm Profitability in Australian Manufacturing. Economic Record, 75, 115-126. https://doi.org/10.1111/j.1475-4932.1999.tb02440.x
Ito, K. and Fukao, K. (2010) Determinants of the Profitability of Japanese Manufacturing Affiliates in China and Other Regions: Does Localisation of Procurement, Sales and Management Matter? The World Economy, 33, 1639-1671. https://doi.org/10.1111/j.1467-9701.2009.01236.x
Stierwald, A. (2010) The Causes of Profit Heterogeneity in Large Australian Firms. Melbourne Institute Working Paper No. 7/10. https://doi.org/10.2139/ssrn.1632803
Velnampy, T. and Kajananthan, R. (2013) Cash Position and Profitability of Telecommunication Sector in Sri Lanka. Greener Journal of Social Sciences, 3, 324-333. https://doi.org/10.15580/GJSS.2013.6.052113626
Iqbal, A., Hameed, I. and Ramzan, N. (2012) The Impact of Debt Capacity on Firm’s Growth. American Journal of Scientific Research, 59, 109-115.
Hardwick, P. (1997) Measuring Cost Inefficiency in the UK Life Insurance Industry. Applied Financial Economics, 7, 37-44. https://doi.org/10.1080/096031097333835
Gschwandtner, A. (2005) Profit Persistence in the “Very” Long Run: Evidence from Survivors and Exiters. Applied Economics, 37, 793-806. https://doi.org/10.1080/0003684042000337406
Baker, H.K. and Martin, G.S. (2011) Capital Structure and Corporate Financing Decisions: Theory, Evidence, and Practice (Vol. 15). John Wiley & Sons, Hoboken. https://doi.org/10.1002/9781118266250
Myers, S.C. and Majluf, N.S. (1984) Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have. Journal of Financial Economics, 13, 187-221. https://doi.org/10.1016/0304-405X(84)90023-0
Campello, M. (2006) Debt Financing: Does It Boost or Hurt Firm Performance in Product Markets? Journal of Financial Economics, 82, 135-172. https://doi.org/10.1016/j.jfineco.2005.04.001
Maksimovic, V. (1990) Product Market Imperfections and Loan Commitments. The Journal of Finance, 45, 1641-1653. https://doi.org/10.1111/j.1540-6261.1990.tb03733.x
Shim, J.K. and Siegel, J.G. (1997) Financial Management for Nonprofits: The Complete Guide to Maximizing Resources and Managing Assets. Irwin Professional Pub.
Fama, E.F. and Jensen, M.C. (1983) Agency Problems and Residual Claims. The Journal of Law and Economics, 26, 327-349. https://doi.org/10.1086/467038
Myers, S.C. and Rajan, R.G. (1998) The Paradox of Liquidity. The Quarterly Journal of Economics, 113, 733-771. https://doi.org/10.1162/003355398555739
Deloof, M. (2003) Does Working Capital Management Affect Profitability of Belgian Firms? Journal of Business Finance & Accounting, 30, 573-588. https://doi.org/10.1111/1468-5957.00008
Jovanovic, B. (1982) Selection and the Evolution of Industry. Econometrica: Journal of the Econometric Society, 50, 649-670. https://doi.org/10.2307/1912606
Altman, E.I. (1968) Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy. The Journal of Finance, 23, 589-609. https://doi.org/10.1111/j.1540-6261.1968.tb00843.x
Baltagi, B. (2008) Econometric Analysis of Panel Data. John Wiley & Sons, Hoboken.
Gujarati, D.N. (2009) Basic Econometrics. McGraw-Hill Education, New York.
Gujarati, D.N. and Porter, D. (2009) Basic Econometrics. McGraw-Hill International Edition.
Sivathaasan, N., Tharanika, R., Sinthuja, M. and Hanitha, V. (2013) Factors Determining Profitability: A Study of Selected Manufacturing Companies Listed on Colombo Stock Exchange in Sri Lanka. European Journal of Business and Management, 5, 99-108.
Nunes, P.J.M., Serrasqueiro, Z.M. and Sequeira, T.N. (2009) Profitability in Portuguese Service Industries: A Panel Data Approach. The Service Industries Journal, 29, 693-707. https://doi.org/10.1080/02642060902720188
Bancel, F. and Mittoo, U.R. (2004) Cross-Country Determinants of Capital Structure Choice: A Survey of European Firms. Financial Management, 33, 103-132.
Antoniou, A., Guney, Y. and Paudyal, K. (2008) The Determinants of Capital Structure: Capital Market-Oriented versus Bank-Oriented Institutions. Journal of Financial and Quantitative Analysis, 43, 59-92. https://doi.org/10.1017/S0022109000002751