study sought to investigate firm Age and Profitability: Evidence from Nigeria.
The main objective of this study is to determine if firm age affect the
profitability of non-financial companies in Nigeria and also to know if older
firms out performs younger firms. Age can have adverse effects on performance
also because of the organizational rigidities and inertia it brings about and
because it impairs the ability affirm to perceive valuable signals. Descriptive
statistic and correlation analysis which tests for normality and association
among the data in the variables in the model specified and a cross sectional
analysis was carried out by way of panel data regression technique. The study
concluded that young firms are better but the higher the age, the more profit
the firm is expected to generate. The study recommends that firms whether old
or young should better align their business activities to be able to withstand
both internal and external factors that could hinder performance in future.
TABLE OF CONTENTS
of Contents vi
Background to the Study 1
Statement of Problem 4
Research Questions 4
Objective of the Study 5
Statement of Hypothesis(es) 5
Significance of the Study 6
Scope of the Study 6
Limitations of the Study 7
Definition of Terms 7
Two: Review of Related
of Profitability 23
of Firm Age 28
2.5 Firm Age
and Profitability Empirical Studies 33
2.6 Firm Size
and Profitabil1ty Empirical Studies 39
Manufacturing Industries 41
Three: Research Method and Design
Research Design 44
Description of Population of the Study 45
Sample Size 45
Sampling Techniques 45
Sources of Data Collection 45
Method of Data Presentation 46
Method of Data Analysis 46
Four: Data Presentation, Analysis and Interpretation 48
4.1 Introduction 48
4.2 Data Presentation 48
4.3 Data Analysis 49
Five: Summary of Findings, Conclusion and Recommendations 56
5.2 Summary of Findings 56
1.1 Background to the Study
issue whether older firms are superior in profitability than younger firms,
have generated large amount of theoretical and empirical research in the
economics, management and finance disciplines. Yet, the theoretical postulates
and empirical evidence have remained
inconclusive on the debate, upon the impact of the age of the firm on its
profitability. This is traceable to institutional issues, which necessarily are
country-specific have not been taken into account.
issue of the age of a firm as it relates to firm performance in terms of
profitability is currently of great importance since studies on firm
performance has become a big issue in management literature. Industrial policies
and follow-up from the legislation, no doubt has shown a clear, and important
role for small private firms in the Nigerian economy. To this end, it therefore,
becomes an imperative to investigate whether younger firms who are often
favoured by government policies, perform better than older firm or otherwise.
Age is believed to be an advantage to any phenomenon That is, the older the
unit (individual, group, firm or government) the more experience, and then
better performance. But the pertinent question remains: Does older firms
perform better than younger firms? The questions have been inconclusive as a
result of the mixed nature of answer(s) to the questions raised.
studies have argued that: Active Corporation with a number of bureaucrats and
political structures have flaunted established norms and consequently, attain
both economic power and achieve large size (Bhagwatt & Desai, 1970, Krueger,
1974, Marathe, 1989). The apriori expectation
with respect to the direction of the relationship between firm age and
profitability are likely to be equally fuzzy.
role of private enterprises was circumscribed in Nigeria in the 1970s by policies
which fostered an import – substitution, export pessimistic this made entry and
exit to and fro various sectors of the Nigerian economy highly controlled by
government, leaving private enterprises no initiative to manage their
operatives (Moham & Agarwal, 1990,
Nayyar, 1994) Not until the 1980s, when the failure of the public enterprises
started to manifest, government then started to look inwards due to economic
hardship led to the government tinkering with restrictive industrial policies
in an attempt to reform Various reforms were introduced since the Nigerian
government realized that the private sector has a very important role to play
in fueling the economic and industrial growth of the economy. Before this time,
many firms who could not survive the harsh
government policies, had folded up except for the giant multinational
is against this backdrop that this study seeks to investigate the relationship
between the age of a firm and its performance in terms of profitability. That
is, to determine whether older firms perform better than younger firms.
1.2 Statement of Problem
non-financial companies in Nigeria is inclusive of both companies that have
failed or succeeded. It is therefore of great importance to know the effect of
firm age on the profitability of the companies. There is inconclusive state of
the argument and debate in the finance and management literature on account of
the direction of relationship between the age of firm and its profitability.
This forms our major gap in the literature which has prompted this study.
Another gap emanates from the divergent views on the measurement of firm age
The following are the questions to be considered in
i. To what extent does firm age affect the
profitability of non-financial companies in Nigeria?
What is the nature of the effect of firm
age on the profitability of the firm?
To what extent does older firms out
performs younger firm?
1.4 Objective of the Study
the research questions raised above, the specific objective to guide the study
i. To determine if firm age affect the
profitability of non-financial companies in Nigeria.
To examine the nature of the effect of
firm age on the profitability of the firm.
To know if older firms out performs
Statement of Hypothesis
on the objectives of the study, the following hypotheses are formulated;
HO: There is no relationship between firm age and profitability.
HI: There is relationship between firm age and profitability.
HO: Older firms does not perform better than younger firms.
HI: Older firms perform better than younger firms.
HO: Firm’s age does not affect the profitability
of non-financial companies in Nigeria.
HI: Firm’s age affect the
profitability of non-financial companies in Nigeria.
1.6 Significance of the Study
study will be of relevance to:
1. Companies with better understanding of the
dynamics of the effect of firm age and its profitability.
2. It will also contribute to the existing
frontiers of knowledge.
3. It will help firms to better improve their
working in other to be more profitable.
of the Study
study examines if firms age is a determine of firm financial performance in
Nigeria. The study investigates about seventy-nine (79) non-financial companies
listed on the Nigerian Stock Exchange. The time frame for this study is between
2009 – 2014 (i.e. 5 years) and the geographical coverage is Edo State.
1.8 Limitations of the Study
data such as annual financial reports are prepared using different economic and
management policies accounting years and different data thus, there are
accorded different interpretation by users of such reports. The nature of
variable, may not allow for generation as it not true representative of the
entire company. Other limitations of the study are those practical problem
hindrance or constraint that limited against the study. In the process of
carryout the study, many difficulties and constraints were encountered.
Lack of response from the people who are
Reluctance on the part of some officer to
provide official information
A firm is an organized business enterprise.
is the capacity to make money or the quality or state of being profitable.
A group of people or other legal entities with an explicit purpose and
In terms of administration, it is practice or process or process of managing
and are executives of an organization in terms of execution.
An individual who provide labour to a company or another person.
This can be collection of firms or businesses of the same type, considered
as a while.
is the process of growth, improvement directed toward positive change.
is that which constitutes or is regarded as an equivalent or a reward on some
loss or service.
The whole duration of a thing which is between its beginning to the present
period under review.
This is the whole duration or life period that a business enterprise has