European Journal of Business and Management www.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol.5, No.16, 2013 42 Determinants of Corporate Profitability in Developing Economies Obehioye U. Ehi-Oshio*, Aderin Adeyemi, Dr. Augustine O. Enofe Department of Accounting, Faculty of Management Sciences, University of Benin. *e-mail of corresponding author: ehioshioobehioye@gmail.com Abstract The study investigates the determinants of corporate profitability in developing economies, with main emphasis on the Nigerian context. The study analyzes the relationship between capital structure, firm size, cash liquidity, financial leverage and corporate profitability. A panel data consisting of forty (40) randomly selected companies, spanning a period of five (5) years was utilized for the study. The ordinary least square regression was used to analyze the existence of relationships among the dependent and independent variables. A positive relationship was found to exist between firm size and corporate profitability, and financial leverage and corporate profitability. Capital structure and cash liquidity exhibited negative relationships with corporate profitability. The study recommended the use of different indices of profitability; as differing results are possible. The study further proposed the inclusion of additional variables in order to improve the stability and explanatory power of the overall model. Keywords: Corporate Profitability, Capital Structure, Firm Size, Cash Liquidity, Financial Leverage. Introduction Most organizations are set up with the aim of making profit and giving back sufficient returns to its shareholders. Corporate profitability can basically be defined as the degree to which an organization can effectively utilize its available funds and assets, and convert them into profits. Profitability of corporate ventures enables organizations to better withstand negative shocks and contribute to the stability of the business environment. The profitability of an organization is affected by numerous factors. These factors include elements internal to each organization and several important external forces shaping earnings performance (Ani, Ugwunta, Ezeudu & Ugwuanyi, 2012). The importance of corporate profitability can be appraised at the micro and macro levels of the economy. At the micro level, profit is the essential prerequisite of a competitive enterprise and the cheapest source of funds. It is not merely a result, but also a necessity for successful business in a period of growing competition in financial markets. Hence, the basic aim of an organization’s management is to achieve profit, as the essential requirement for conducting any business (Bobakova, 2003). At the macro level, a sound and profitable business environment is better able to withstand negative shocks and contribute to the stability of the business environment. Organizations are generally perceived to play a central role in developing economies and their performance is one of the most important issues for many firm stakeholders such as shareholders, creditors, employees, suppliers and governments (Bhayani, 2010; Madrid-Guijarro, Auken & Perez-de-Lema, 2007). For this reason, analyzing the factors determining firm profitability and identification of the sources of variation in firm-level profitability has been regarded as important research themes by the researchers in the fields of economics, strategic management, marketing, accounting and finance (Gaur and Gupta, 2011; Nunes , 2009; Jonsson, 2007). Statement of the Research Problem Due to the fact that firms’ financial performance directly affects the stability of the countries’ economic systems in today’s capitalist world economy, the factors affecting firm profitability deserve special attention (Akbas & Karaduman, 2012). Profitability is the major tenet of most corporate entities; hence it’s relative importance in the analysis of corporate growth and survival. There are lots of factors that can have impact on the profitability of firms. Among these factors, capital structure, firm size, cash liquidity and financial leverage have been considered for analysis in this study as determinants of corporate profitability. The study therefore proposed the following research questions: 1. What is the relationship between capital structure and corporate profitability? 2. What is the relationship between firm size and corporate profitability? 3. What is the relationship between cash liquidity and corporate profitability? 4. What is the relationship between financial leverage and corporate profitability? Objectives of the Study The objectives of the study are to: 1. Analyze the relationship between capital structure and corporate profitability. 2. Analyze the relationship between firm size and corporate profitability. 3. Analyze the relationship between cash liquidity and corporate profitability.