Determinants of profitability of the IT industry in Croatia

Abstract

Purpose: Two research questions are posed in the paper that investigate and analyze the relationship be-tween profitability and microeconomic determinants of business activity classified under J62 in the Repub-lic of Croatia on a sample of 280 IT firms in the period from 2019-2021. Methodology: The present research is based on the resource-based view (RBV) approach - firm-specific determinants of firm profitability. Multiple regression analysis was conducted to investigate the determi-nants of industry profitability, as determined by ROA and ROE. Results: Further analyses investigated a correlation between the identified internal factors and the profita-bility of IT firms. Finally, two profitability models were set up, defined by a single set of internal factors with different correlations and statistical significance. It was shown that the independent variables Debt (DBT), Total assets (SIZE), and EBIT have statistical significance in both models, ROA and ROE demonstrate a strong correlation, the variables Stratification and Current liquidity (CL) show a correlation with the ROA model, and the lagged variables have different predictive abilities in terms of mROE. Conclusion: The results of multiple regression analysis show that there is a correlation between internal factors and profitability at the firm level.