An Empirical Study on: The Influence that the Size and Age of a Company has over Profitabiliti
Juan Pedro Sánchez Ballesta
Domingo García Pérez de Lema
In this paper we analyse the influence that firm size and age has on the return on equity and its explanatory variables, in the Spanish manufacturing industry in 1994 and 1998, and the moderating effect that the economic situation and industry have on that relationship. We carried out an empirical study using a sample of 21.360 firms in 1994 and 27.620 firms in 1998. The results show that the positive relationship between size and ROE takes place in a situation of economic growth and it is caused by profit margin and debt average cost. The different types of industries also influence the relationship between firm size and ROE. The effect that age has on financial profitability, takes place in smaller firms with a higher debt/equity ratio.
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