A Panel Data Analysis of the Factors Influencing Profitability in Indian Iron and Steel Firms

The objective of the research was to explore the internal financial determinants that influence the profitability of iron and steel companies listed on the Indian stock exchange in the period from 2014 to 2024. By utilizing panel data analysis, the study focused on the performance of 10 prominent iron and steel firms listed on the BSE, and evaluated the impacts of various indicators on profitability such as firm size, working capital requirement, company efficiency, liquidity and leverage, as measured by EPS and ROE. The study showed that EPS exhibited a strong and statistically significant positive effect on ROE in all tested models. The Fixed Effects Model (FEM) was chosen as the most suitable out of all models tested since the Hausman test showed the importance of company-specific features for the profitability of companies. The usage of descriptive statistics and correlation analysis indicated high variability of profitability across different firms and that profitability measured in terms of ROE is positively associated with EPS. The analysis of autocorrelation and normality illustrates that the behavior of ROE can be described as steady and normal while EPS shows larger variations than ROE being slightly deviated from the normal distribution which points to the differences in risk-return profiles of firms. Notwithstanding the presence of heteroskedasticity, the results of the study reveal the presence of positive contributions of firm efficiency and size to profitability, although the impact of leverage and working capital differs depending on the model and characteristics of the firm. To sum up, the study concludes that EPS, firm efficiency, and firm size are the key internal factors defining profitability in the iron and steel sector in India. These results help corporate managers and investors improving the financial performance of firms in the industry.

1. Amato, L.H., & Burson, T.E. (2007). The effects of firm size on profit rates in financial services. Journal of Economics and Economic Education Research, 8(1), 67–82. 2. Athanasoglou, P.P., Brissimis, S.N., & Delis, M.D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. International Financial Markets, Institutions and Money, 18(2), 121–136. 3. Jackling, B., & Johl, S. (2009). Board structure and firm performance: Evidence from India's top companies. Corporate Governance: An International Review, 17(4), 492–509. 4. Dong, H., & Su, J. (2010). The relationship between working capital management and profitability: A Vietnam case. International Research Journal of Finance and Economics, 49(1), 59–67. 5. Burja, C. (2011). Factors influencing the company's profitability. Annales Universitatis Apulensis Series Oeconomica, 13(2), 215–224. 6. Alipour, M. (2011). Working capital management and corporate profitability: Evidence from Iran. World Applied Sciences Journal, 12(7), 1093–1099. 7. Charumathi, B. (2012). On the determinants of profitability of Indian life insurers: An empirical study. Proceedings of the World Congress on Engineering, London, Vol. 1. 8. Almajali, A.Y., Alamro, S.A., & Al-Soub, Y.Z. (2012). Factors affecting the financial performance of Jordanian insurance companies listed at Amman Stock Exchange. Journal of Management Research, 4(2), 266–289. 9. Ghosh, S. (2006). Do board characteristics affect corporate performance? Firm-level evidence for India. Applied Economics Letters, 13(7), 435–443. 10. Innocent, E.C., Mary, O.I., & Matthew, O.M. (2013). Financial ratio analysis as a determinant of profitability in Nigerian pharmaceutical industry. International Journal of Business and Management, 8(8), 107–117.