In particular, we consider the effects of firm size and firm ownership on the level of profitability in this sector.
MPOB cited on www. Kumpulan Guthrie and Sime Darby are examples in this category. Among the public sector agencies, FELDA has played the most significant role in the development of oil palm in Malaysia.
In fact, it is the single largest palm oil player in the industry in Malaysia, accounting for In determining factors influencing performance diversity, literature dealing with such work suggests that industrial performance and performance differences among firms can be explained as arising from various characteristics: Industrial organisation economists point to industry effects i.
On the other hand, the resource-based view Wernerfelt, ; Barney, ; Peteraf, suggests that the explanation for the existence of more or less profitable firms within the same industry must be found in the internal factors of each company for example, market share, firm size, skill level, etc.
In this paper, we emphasize the firm effects on performance as our focus is on a single industry. In particular, we highlight the role of size and ownership as determinants of firm performance. Firm Size and Profitability Economic theory prescribes that increasing firm size allows for incremental advantages because the size of the firm enables it to raise the barriers of entry to potential entrants as well as gain leverage on the economies of scale to attain higher profitability.
For example, in the case of palm oil plantations, a new entrant has little choice but to incur substantial fixed costs in gaining entry to the industry, in the form of acquiring and working the plantation estates, acquiring and maintaining equipment, machineries and acquiring or constructing palm oil refineries in addition to advertising extensively to let customers know that it is in the market.
Empirical evidence, however, has not been able to clearly verify the "size does matter" hypothesis. Much of the early works that tried to prove that size does matter was based on markets in the U.
Among the pioneering studies conducted in this field is attributed to Hall and Weiss Their empirical analysis of Fortune Industrial Corporations for the years — aimed at testing the relationship between profit rates and other appropriate variables such as firm size, concentration, leverage and growth.
Results of the study showed that firm size proxied by the log of firm assets exhibit a positive relationship with profitability [represented by Return on Equity ROE and Return on Assets ROA ].
They concluded that large firms have all the options of small firms, and, in addition, the capability of harnessing economies of scales and access to capital markets from which small firms are excluded, thus leading to higher profit rates. The Hall and Weiss study, however, considered only firms of optimal size.
A comparable study was made by Marcus who re-evaluated earlier findings against new data within an improved analytical framework. Marcus' study included the entire distribution of firms. Results showed that firm size influences profitability in some, but not all industries.
Since profitability is ultimately determined by several complex factors including product prices, factor costs, and the production function, the relationship to size varies among industries and cannot be readily identified. Thus, the hypothesis that size does matter cannot be offered without providing relevant qualifications.
These qualifications are explained in Reinhard's oligopoly model which suggests that size is positively related to a firm's ability to produce technologically complicated products which in turn leads to concentration.
Such markets are supplied by few competitors and are therefore, more profitable. Thus, larger firms have access to the most profitable market segments. Prescott and Vischer show that the positive association between firm size and profitability stems from implementing greater differentiation and specialization strategies, and should therefore lead to higher efficiency.
However, many of the recent studies that consider the size-profitability relationship tend to show non significant results. In fact, in a meta-analysis conducted by Capon et al. Poensgen and Marxfor example, test the relationship between firm size and profitability for a sample of 1, German manufacturing firms in 31 industries.
Results reveal weak sizeprofitability correlations that are unstable over the study period. Yeung profitability would depend largely on how well firms cope with size and exploit the opportunities associated with it.
Whittington even found a negative association between firm size and profitability for U." Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol.
1(1), pages Cited by: Claudiu Botoc, THE GRIFFITH PROJECT VOLUME 1 FILMS PRODUCED FILMS PRODUCED aamjaf, vol. 1, 33â€“52, asian academy of management journal of accounting and finance 1 csr activities and impacts of the construction sector andrã© martinuzzi, robert kudlak, claus faber.
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