Sectoral analysis of the differences in profitability of Czech and German business ventures – an empirical benchmark study

Abstract

Profi tability measures are a lens through which business can be viewed and they form a common\nbasis for investment decisions. Especially in areas close to national borders, these decisions could\nbe linked to the question on which side of the border a venture should be located in order to realise\ncountry-specifi c comparative advantages that make the investment more profi table. Differences in\nprofi tability between countries are driven by manifold aspects, including specifi c cost or revenue\nstructures, fi nancing patterns and conditions, as well as taxation. The aim of this study is to identify\nthe driving factors behind differences in profi tability of Czech and German fi rms on the basis of\na comparative analysis. In this article, a two-step variance analysis is conducted. The fi rst step\nfocuses on the operational differences in RoA between Czech and German ventures, which is\nbased on deeper analyses of the asset turnover and the profi t margin. In the second step, the\ndifferences in RoE are analysed, considering infl uences from national taxation, conditions and\npatterns of fi nancing and operations of the ventures. A model-based cumulative variance analysis\nquantifi es the impacts of these underlying drivers of profi tability with a comparative focus. For this\nreason, the average measures of these drivers from 2002 to 2014 – the longest time series available\nfor both countries − are extracted from the BACH database, which provides harmonised accounting\ninformation. This paper confi rms the hypothesis that specifi c drivers of profi tability differ signifi cantly\nbetween the two countries in certain business sectors and would cause substantial differences in\nprofi tability. Due to the overlapping nature of these individual effects, they compensate each other\nto a great extent. The results provide useful benchmarks that a company´s management can use to\nincrease its profi tability tackling specifi c comparative (dis-)advantages between the Czech Republic\nand Germany.

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