FIRM AGE AND PROFITABILITY: EVIDENCE FROM NIGERIA

FIRM AGE AND PROFITABILITY: EVIDENCE FROM NIGERIA (ECONOMICS PROJECT TOPICS AND MATERIALS)

Abstract

This study sought to investigate firm Age and Profitability: Evidence from Nigeria. The main objective of this study is to determine if firm age affect the profitability of non-financial companies in Nigeria and also to know if older firms out performs younger firms. Age can have adverse effects on performance also because of the organizational rigidities and inertia it brings about and because it impairs the ability affirm to perceive valuable signals. Descriptive statistic and correlation analysis which tests for normality and association among the data in the variables in the model specified and a cross sectional analysis was carried out by way of panel data regression technique. The study concluded that young firms are better but the higher the age, the more profit the firm is expected to generate. The study recommends that firms whether old or young should better align their business activities to be able to withstand both internal and external factors that could hinder performance in future.

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

The issue whether older firms are superior in profitability than younger firms, have generated large amount of theoretical and empirical research in the economics, management and finance disciplines. Yet, the theoretical postulates and empirical evidence have remained inconclusive on the debate, upon the impact of the age of the firm on its profitability. This is traceable to institutional issues, which necessarily are country-specific have not been taken into account.

The issue of the age of a firm as it relates to firm performance in terms of profitability is currently of great importance since studies on firm performance has become a big issue in management literature. Industrial policies and follow-up from the legislation, no doubt has shown a clear, and important role for small private firms in the Nigerian economy. To this end, it therefore, becomes an imperative to investigate whether younger firms who are often favoured by government policies, perform better than older firm or otherwise. Age is believed to be an advantage to any phenomenon That is, the older the unit (individual, group, firm or government) the more experience, and then better performance. But the pertinent question remains: Does older firms perform better than younger firms? The questions have been inconclusive as a result of the mixed nature of answer(s) to the questions raised.

Several studies have argued that: Active Corporation with a number of bureaucrats and political structures have flaunted established norms and consequently, attain both economic power and achieve large size (Bhagwatt & Desai, 1970, Krueger, 1974, Marathe, 1989). The apriori expectation with respect to the direction of the relationship between firm age and profitability are likely to be equally fuzzy.

FIRM AGE AND PROFITABILITY: EVIDENCE FROM NIGERIA (ECONOMICS PROJECT TOPICS AND MATERIALS)