Firm Size and Profitability: A Study of Indian Pharmaceutical Industry

Abstract

Theoretically,thereexists arelationship between firm sizeandprofitabilitywhich isevidentfrom theconcept ofeconomies and diseconomies of scale. This study attempts to investigate this relationship in the context of Indian Pharmaceutical Industry, whereby, data has been collected for relevant variables for 30 pharmaceutical companies listed on the BSE for a period of 2000–2013. The PAT/Sales, PAT/TA and ROCE are taken as measures of profitability, whereas, Net Sales and Total Assets are used for measuring firm's size. In order to study this relationship, the regression analysis and least-squares dummy variables (LSDV) regression model are used. Multi-collinearity and autocorrelation in data are verified with the help of VIF test and Durbin Watson statistic test.