Firm‐specific and economy wide determinants of firm profitability : Greek evidence using panel data

Purpose – The purpose of this paper is to examine the determinants of profitability for a sample of Greek non‐financial firms listed in the Athens Stock Exchange for the period 1995‐2003. This is a very important period for the Greek economy on the way to European monetary union (EMU). Design/methodology/approach – The methodologies employed include panel data estimation techniques. This research attempts to exploit the determinants of firm profitability of non‐financial Greek firms listed in Athens Exchange utilizing firm‐specific publicly available accounting variables using panel data estimation techniques rather than cross‐sectional analysis. Findings – According to the findings, firm profitability was positively affected by size, sales growth and investment and negatively by leverage and current assets. Additionally, we found that the EMU participation and the adoption of the euro were negatively related to firm profitability. Practical implications – Taking into account the fact that the Greek economy has undergone significant transformation during the period under examination on its way to join EMU and to adopt the euro currency, a model has been formulated where both firm‐specific and economy wide factors determine firm profitability. Originality/value – This paper focuses on a less developed and efficient stock market. In contrast to previous studies that did not take into account the convergence of the Greek economy to EMU averages and the subsequent adoption of the euro, this paper analyses data for the pre‐EMU and the post‐EMU periods in an attempt to quantify a potential macroeconomic effect on firm‐specific profitability.