Determinants of Profitability in Non-Financial Peruvian Firms: A Panel Data Approach for 2004-2022

This paper examines the factors influencing a standard measure of profitability, net margin, in a sample of non-financial private Peruvian companies from 2004 to 2022. We estimate a dynamic panel data using a two-step system Generalized Method of Moments and we conclude, firstly, that profitability has a significant inertial component of around 35 percent. Secondly, measures of companies’ financial performance such as leverage, and operational performance such as inventory management, negatively affect net margin. Conversely, a higher cash conversion cycle and working capital positively impact margins. Additionally, profitability declines as the company operates for more years in the market. An estimated measure of productivity (referred to as technical efficiency) confirms the existence of a significant direct relationship with the net margin.