International Journal of Economics and Financial Issues ISSN: 2146-4138 available at http: www.econjournals.com International Journal of Economics and Financial Issues, 2022, 12(6), 86-91. International Journal of Economics and Financial Issues | Vol 12 • Issue 6 • 2022 86 What Factors Infuence the Proftability of Firms in Malawi? Evidence from the Non-Financial Firms Listed on the Malawi Stock Exchange Fredrick M. Banda 1 *, Abdi-Khalil Edriss 2 1 Department of Business Administration, Private Bag 303, Chichiri, Blantyre, University of Business and Applied Sciences, Malawi, 2 Department of Agricultural and Applied Economics, Lilongwe University of Agriculture and Natural Resources, P.O. Box 219, Lilongwe, Malawi. *Email: fmbanda@mubas.ac.mw Received: 23 August 2022 Accepted: 01 November 2022 DOI: https://doi.org/10.32479/ijef.13472 ABSTRACT For frms listed on the stock market, proft is crucial as it ensures the efcient allocation of scarce resources, and leads to the increase in the price of shares. The purpose of this study was to identify the drivers of proftability for the non-fnancial frms listed on the Malawi Stock Exchange (MSE). Previous studies have only focused on commercial banks without considering the determinants of proftability of non-fnancial frms. This study, therefore, adds to the literature by analyzing the drivers of proftability for non-fnancial frms listed on the MSE. It employs the panel data method, particularly, the Random Efects model (REM) using quantitative data collected from the fnancial statements of six non-fnancial frms listed on the MSE from the period 2014-2018. Regression results indicate that taxation and asset tangibility are the negative determinants of proftability on the MSE while non-tax debt shield (NDTS) and interest rate coverage ratio are positive determinants of proftability. The general policy implication arising from this study is that in order to make more profts managers of the frms should focus on increasing NDTS and interest coverage ratio, having more liquid assets than tangible ones, and reducing the corporate tax charged to frms. Keywords: Liquidity, Non-Financial Firms, Interest Coverage Ratio, Non-Tax Debt Shield, Leverage, Proftability JEL Classifcations: G0, General; G3, Corporate Finance and Governance 1. INTRODUCTION Traditionally, economists assume that the main goal of frms is to maximize proft. This behavioral assumption is based on the neoclassical theory of the frm, which posits the frm as a proft- maximizing “black box” that transforms inputs into outputs for sale in the market. Thus, proft is considered the engine of maximum production and efcient resource allocation in pure capitalism (Webster, 2003), and is, therefore, the most sought-after thing among investors, managers of business frms, and government policymakers. This is the case because the existence of proft opportunities represents an important signaling mechanism for the dynamic allocation of society’s scarce productive resources. For example, rising profts in certain industries signify that the society prefers output produced by those industries. This signals existing frms to expand production and it attracts new frms to enter the industry. On the other hand, declining profts signal producers that society wants less of that particular good or service, thereby presenting existing frms with an incentive to reduce production or exit the industry entirely. With regards to the stock market, increased profts of listed frms can cause the stock price to rise as investors feel more confdent about the frms’ future thereby making demand for the stock increase (Mishkin, 2004). The increase in the demand for stocks leads to an increase in the issuance of dividends and stock This Journal is licensed under a Creative Commons Attribution 4.0 International License