The Determinants of probability: Evidence from Japanese Automobile and Parts Industry

The purpose of this research is to examine the determinants of profitability of the firms operating in the “Automobile and Parts” industry in Japan over the 2005-2015 periods. The findings of this study are expected to provide important implications to managers of sample firms in tailoring appropriate strategies to improve profitability. In this study, firm size, sales growth, current assets, liquidity ratio, long term debts, gross domestic product growth rate, and annual inflation rate are chosen as independent variables. On the other hand, return on assets is used as a measure of profitability which is the dependent variable. Secondary data were obtained from balance sheets and income statements of 101 firms operating in the Automobile and parts industry in Japan. In order to explore the determinants of profitability, “Panel Data” analysis is used and “Fixed Effects” and “Random Effects” methods are utilized. The results demonstrate that firm size, sales growth, liquidity ratio, and gross domestic product growth rate have statistically significant positive impact on profitability. On the other hand, current assets and long term debt are found to have statistically significant negative impact on Profitability. Keywords: Profitability, Panel data, Automobile industry