Firm Age, Size and Profitability Dynamics: A Test of Learning by Doing and Structural Inertia Hypotheses

Abstract

The fundamental objective of this paper is to investigate the relationship between company age, company size and profitability against the background of the learning by doing and structural inertia hypotheses. The study population consists of the universe of companies (202) listed on the Nigerian Stock Exchange Market as at December 2014. A sample of 30 firms was scientifically selected for the study. The analysis was carried out using archival data from 2006 to 2012, comprising of 210 observations. The panel data regression analysis is the technique for data analysis. The choice of the technique is premised on its property of increase data points and control for individual heterogeneity. The usual classical regression assumption tests were effected to ensure the accuracy of the regression model. The study finds a significant positive relationship between firm age, firm size and profitability. The control variable of board size reports a negative and insignificant relationship with profitability. The significant positive relationship between company age and profitability, is a confirmation of the learning by doing hypothesis. However, the positive relationship between size and profitability, negates the hypothesis of structural inertia. Against the backdrop of the research findings, we recommend that the management should strive to increase the scale of operation of businesses and by implication, the size of the business to enhance improved reputation and attractiveness.