PROFITABILITY AND OPTIMAL DEBT LEVEL OF LARGE FIRMS IN SERBIA

Abstract

The aim of this research is to analyse the impact of debt
management on the profitability of firms. The research was
conducted for a five-year period from 2016 to 2020, on a sample of
299 large non-financial firms in Serbia. The Generalized Method
of Moments (GMM) is used to examine the ratio of the share of
total debt in total assets to the profitability expressed through the
ROA indicator. The first thing considered is the linear relationship
between indebtness and profitability followed by the nonlinear
relationship between indebtness and profitability. The results of
research show that there is a statistically significant correlation
and a linear, negative ratio of indebtedness indicators in relation to
the profitability of the observed firms. The results of the study do
not show a nonlinear (concave) relationship. They show both
negative and statistically significant impact of tangibility on the
profitability of large companies in Serbia, while company size and
inflation do not have a significant impact on profitability.