Impact of the Perpetual Existence of Firms on Profitability: Empirical Evidence from Food Industry in India

All firms strive to earn high profitability (P) since that is what is expected of firms by the shareholders, creditors, public and other stakeholders. There are many factors that influence P of a firm. Of them, age (AG) which indicates the perpetual existence of the firm in the industry always put it in an advantageous position when compared to the other firms. This study analyses the impact of various variables such as aggressive investment policy (AIP), capital intensity (CAPINS), growth rate (GROW), size (SIZ) and volatility (VOL) on the P controlling for age (AG) with regard to firms in food industry in India. Correlation and multiple regressions are used to study various variables that influence P of a firm for the various age categories. ANCOVA is used to analyze if the controlling variable, AG influences P. The study proves that AG has significant influence on the P of the firms in food industry in India. GROW and SIZ are found to be important determinants of P of new firms encouraging the expansion of the firms in terms of assets and sales, while GROW has a significant impact on P of growing firms. However, SIZ is found to be a good determinant of P in case of established firms.