engleski

Relationship between market share and firm profitability in Croatian economy

The results of the conducted analysis suggest that the increase of market share will have a positive although rather weak effect on the increase of company profitability. This kind of relationship may be due to any or all of the following reasons: Companies with large market share may have products of better quality which enable them to charge higher prices than their smaller counterparts. Companies with large market share may be more efficient on account of scale economies (higher volume can be instrumental in developing cost advantage). Companies with large market share are more innovative. Companies with large market shares may use their reputation as an advantage. Companies with large market shares have an advantage in negotiations with suppliers and channel members. Companies with high market share may be able to satisfy customers’ needs better and consequently be enjoying a competitive advantage vis-&agrave ; -vis their smaller counterparts Even though different functional forms of the relationship between profitability and market share have been tested, of all the functional forms (including the linear, logarithmic, quadratic, growth, exponential and S-shaped curve) only the linear has proved to be statistically significant. Very low explanatory power of the simple linear regression model motivated the authors to include additional explanatory variables SIZE and CR4. Although these variables had a statistically significant effect on company profitability, their introduction into the model caused changes in the significance of market share that became negative and insignificant. An additional note must be also made here. We knew that due to data inaccessibility (and thus impossibility of computation of certain variables) the omission of some variables (that are likely to have influence on profitability) would lower the explanatory power of the regression. However, we did not expect the explanatory power of the regression to be so extremely low. Therefore, even though models are statistically significant, because of their very low predictive power the results must be treated with caution. In order to test whether the inclusion of industry effects would improve the model, dummy variables (D) were introduced into the model, but their introduction did not produce any significant changes in the results. It was found out that only three industries show a statistically significant difference in realised profitability in relation to the referent group DA. Consequently, we believe that in one of the future researches it would be advisable to increase the sample of analysed companies as well as the temporal dimension, and also to extend the model by additional independent variables as that would certainly contribute to the better understanding not only of the relationship between profitability and market share, but also of all the determinants affecting the operating performance of the company.

Tržišni udjeli; profitabilnost; Hrvatska

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