The Determinants of Profitability in Iran's Pharmaceutical Industry: A Panel Data Analysis.

Abstract

Background: Profitability is a fundamental aspect of corporate survival in the pharmaceutical industry, shaped by both firm-level and macroeconomic factors. In Iran, the sector encounters challenges such as reliance on imports, inflation, and sanctions, alongside a lack of empirical evidence regarding the determinants of profitability. This study aims to fill this gap by investigating these factors in listed firms.

Methods: Panel data from 28 companies listed on the Tehran Stock Exchange (2009-2023) were analyzed using fixed-effects Feasible Generalized Least Squares (FGLS) regression. The dependent variables were return on assets (ROA) and return on equity (ROE). The independent variables included firm-specific factors (e.g., leverage, sales growth) and macroeconomic factors (e.g., GDP, inflation). Diagnostic tests, including unit root, cointegration, and heteroskedasticity tests, were conducted.

Results: Results indicated that GDP, money supply, and sales growth were positively associated with profitability. Conversely, interest rates, exchange rates, inflation, government expenditure, leverage, P/E ratio, and liquidity ratios exhibited negative associations. The effects of firm size and tax revenue were mixed. The models accounted for 69-89% of the variation (R-squared), with significant F-statistics (P<0.001). The hypotheses were confirmed, partially supported, or contradicted, as summarized.

Conclusion: The profitability of Iranian pharmaceuticals is susceptible to macroeconomic volatility and firm-specific strategies. It is imperative that policies are implemented to stabilize exchange rates and promote domestic production to enhance sustainability.