The Effect of Firm's Age, Size and Growth on Its Profitability: Evidence from Jordan

This study aims at testing the effect firm's age, size and growth on its profitability based on the financial data of (22) Jordanian insurance firms that are registered in the Amman Security Exchange (ASE) during the period (2008-2017). They represent 95.2 % of insurance firms. The study relied on secondary data of insurance firms that have been published on their website and on ASE website In the study, the mean, standard deviations were used to describe the characteristics of the variables. Simple regression analysis was used to test the study's hypotheses. Simple. the skewness test of all variable is used to know if they have a normal distribution.The study shows that there is an insignificant effect of the insurance firm's age, size, and growth on its profitability. It recommends financial managers to analyze the relationship between a firm's age, size, growth, and profitability before making any decision in the fields of expanding business, renewing assets, manufacturing high-quality products and appointing new employers. In a recession period, managers should not adopt a strategy to achieve high growth in the short run, they should also reduce the size of the firm's operations. These procedures are important for these firms to maintain a balance between growth and profitability.


Literature review 5.1 The relationship between the firm's size and its profitability
Many studies tested the relationship between the firm's size and its profitability. The firm's size affect its performance (Serrasqueiro et al., 2008, Berger andBonaccorsi ,2006) large firms have a better performance , they can use new ways to face market risks and uncertainties, they have better opportunities to avoid losses, and greater achievements (Onder, 2003), they have the ability to negotiate suppliers and competitors, acquire new technology, train employees to make them extensive professional experience, and gains control on the market. Gschwandtner (2005) found that the firms' profits bases on concentration in the industry, so they achieve higher profit rates in the long run. According to Vijayakumar and Tamizhselvan (2010 ) the relationship between the firm's size and its profitability is positive depending on a sample of 15 Indian enterprises. Lee (2009) found that firm's size played a significant role in interpreting their profitability depending on data of 7,000 US firms. Ozgulbas et al., (2006) found that the performance of the large firms is better depending on the data of Turkish firms that are registered in the financial market of Istanbul during the period 2000-2005. Velnampy and Nimalathasan (2010 found that the relationship between the firms' size and their profitability is positive depending on the data of Ceylon and the commercial banks in SriLanka during the period 1997-2006, and he found that there is no relationship between the two variables in Silan banks. In his study, Mule et al., (2015) found a positive relationship between the firms' size and its profitability based on Kenyan firms that were registered in the financial market of Nairobi during the period 2010-2014. The studies of Papatogonas (2007), Abiodun (2013) and Ilaboya et al. (2016) appear to have a significant effect of firm's size on its profitability. Whereas the studies of Goddard et al. (2005), Amato and Burson (2007), Becker-Blease et al., (2010) show a weak and negative relationship between the firm's size and its profitability, but Niresh and Velnampy (2014) found in his study insignificant relationship between the two variables.

The relationship between the firm's growth and its profitability
One of the most important objectives of the firm's management is to achieve high profit by achieving high growth and increasing the firm's size. Achieving a high growth rate is one of the indicators of a firm's success that is affected by its profitability. The firm's growth is a continuous process that is renewed and influenced by its profitability (Vijayakumar and Tamizhselvan, 2010). Malik (2011) argues that firm's growth increases by reinvesting undistributed profits. Firm's growth is a gradual process, starting by increasing sales or the expansion of the business, such as in acquiring new investments in subsidiaries or associates, developing and increasing the number of employees. The profitability and growth variables usually work in the same trend (Geroski and Mazzucato, 2002). There is no evidence insuring a constant relationship between profitability and growth that can be generalized (Coad, 2007). Jang and Park (2011) argue that profitable firms can keep part of their profits to use them in capturing the growth opportunities, and making additional profits. Yoo and Kim (2015) found in their study that profit management strategy limits the firm's growth, the high growth of the firm in the previous fiscal period boosts profitability, also the increasing returns during the growth period improves productivity and profitability, a strategy of achieving high growth in the short term will make management less flexible, less able to achieve satisfactory growth during the recession, and reduces the size of the firm's operations. The sudy of Mukhopadhyay and AmirKhalkhali (2010) shows that the large firms grow at a faster rate. Glancey (1998) found in his study a strong relationship between firm's profitability and growth. Markman and Gartner (2002) and Fitzsimmons et al. (2005) found insignificant relationship between the firm's growth and its profitability. Wagenvoort (2003) study showed that small-scale firms will face financial pressures, this will hinder their growth.

The study methodology
The methodology consists of the study's population and sample, the variables, the statistical techniques, the hypotheses test, and the results discussion.

The study population and sample
The study sample consists of 22 firms. They represent 95.2 % of insurance firms that are registered on ASE. The study depends on the financial reports of these firms within the period (2008-2017). Table No. (1) summarizes the number of the sample firms, and the observations' per firm on its financial statements and the total observations.

Data collection
The study relied on a secondary data of insurance firms that has been published on their website in addition to the financial statements published on the ASE website.

The study variables
The study examines the effect of firm's age; size and Growth (independent variable) on its profitability (dependent variable). See Table 2 appears the variables, their symbol and the measuring variable method.

Analytical Model
The analytical model of took the form; ROA = β0 + β1 Age + β2 Size + β3 Growth + έ Where; ROE: Return on Equity, Β0 : Constant , Size: log Total assets , Age: log of the number of years since firm s' inception as the proxy variable for age, Growth: Annual growth rate of the total assets , and έ -Random error.

Statistical methods
In the study the mean, standard deviations were used to describe the variables characteristics. Simple regression analysis was used to test the study's hypotheses. According to the descriptive statistics which was contained in Table No.3, the Standard deviations in the variables data of all companies were low, the biggest figure was associated with the log revenue (sales) and the lesser one was associated with variable ROE.  Vol.12, No.5, 2020 91 correlation is between ROE and AG, and the lesser one is between ROE and Log age. 0.000 0.043 0.002 N 220 220 220 ** Correlation is significant at the 0.00 level (2-tailed) * Correlation is significant at the 0.05 level (2-tailed).
6.6 Hypotheses test H01: There is no statistically significant effect of the insurance firm's age on its profitability.  Table 5 shows the analysis of the relationship between firm's age and its profitability. Beta coefficient is -0.074. Moreover, the adjusted R-square is 0.9 %, this means that a 0.9 % of the total deviations in profitability variable can be interpreted by the linear relationship in the model. As a result, there is no statistically significant effect of firm's age on its profitability at p-value less than 1%. Hypothesis H01 should be accepted. H02: There is no statistically significant effect of the insurance firm's size on its profitability.  Table 6 shows the analysis of the relationship between size (log assets) and profitability (ROE). Beta coefficient is 0.158. Moreover, the adjusted R-square is 14.9%, this means that a 14.9 % of the total deviations in profitability variable can be interpreted by the linear relationship in the model. As a result, there is statistically significant effect of firm's size on profitability at p-value less than 5%. Hypothesis H02 should be rejected. H03: There is no statistically significant effect of the insurance firm's assets growth on its profitability.  Table 7 appears the analysis of the relationship between assets growth and profitability. Beta coefficient is 1.063. Moreover, the adjusted R-square is 62.2 %, this means that a 62.2 % of the total deviations in profitability variable can be interpreted by the linear relationship in the model. As a result, there is a statistically significant effect of Assets growth on profitability at p-value less than 1%. Hypothesis H02 should be rejected.