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Determinants of profitability of firms in the retail sector: The case of Croatia

Stojcic, Nebojsa and Vojvodic, Katija (2012): Determinants of profitability of firms in the retail sector: The case of Croatia.

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Abstract

Profitability is often defined as an ultimate criterion of a firm’s competitiveness. A firm is considered competitive if it can outperform its rivals and make profits in the long run. The ability of firms to make profits is commonly associated with a number of firm-specific, industrial and location-specific characteristics. The need to understand these factors and forces is particularly pronounced in the context of the current economic downturn. To explore the impact of firm size, market share, market orientation, agglomeration externalities, industrial concentration and foreign direct investment (FDI) on the profitability of firms, a GMM dynamic panel methodology is applied to the large sample of firms from the Croatian retail sector in the period between 2003 and 2010, taken from Amadeus database. The choice of dynamic panel methodology enables us to distinguish between the short and the long run effects of these factors and forces on profitability, as well as to take into account the potential sources of unobserved heterogeneity and endogeneity.

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