Firm size-profitability nexus: Evidence from panel data for Nigeria

Abstract

The paper investigates the long run relationship and causality issues between firm size and profitability in 66 firms in Nigeria by using the panel cointegration method for the period 1999-2007. The empirical results show that there is long run steady-state relationship between firm size and profitability. The short run causal relationship shows that there is bidirectional relationship between firms' size and profitability. This implies that firm size Granger causes profitability and profitability Granger causes firm size. The results clearly refute the general assumption that causation runs from only firm size to profitability on which most existing studies have been based.