The influence of year, period, supersector, and business specific effects on the profitability of South African publicly listed companies

Abstract

The determinants of profitability should be at the forefront of CEO’s, managers and business owners minds. Whether the business takes a stockholder or stakeholder approach profit maximisation is the source for the sustainability of a business. International research has been conducted since the 1970’s to establish the effects year, company and industry structure have on the profitability of companies. There is still no consensus as to which variables have the greatest effect on performance of firms. A quantitative research methodology was followed whereby all organisations listed on the Johannesburg Stock Exchange were categorised into their respective Supersectors for the period 1983 to 2008. The performance measures of return on assets, return on equity and return on capital employed were then calculated for all companies and analysed across year, period, company, interaction of company and year, interaction of company and period and finally against Supersector. Five of the six hypotheses in the Variance Component tests showed a variation and one did not. Of these, Supersector was seen as having no variance, and hence no impact on the profitability of firms. Year, period, company and the interactions of these showed significant variance in determining profitability. These results show that year, period (pre and post apartheid) and company do have an effect on the profitability of listed companies. This study allows for Corporate Strategists to focus their efforts on the areas that will have the greatest impact.