The Determinants of Profitability in Iran's Pharmaceutical Industry: A Panel Data Analysis

Profitability is a fundamental aspect of corporate survival in the pharmaceutical industry, shaped by both firm-level and macroeconomic factors. In Iran, the sector encounters challenges such as reliance on imports, inflation, and sanctions, alongside a lack of empirical evidence regarding the determinants of profitability. This study aims to fill this gap by investigating these factors in listed firms.

Panel data from 28 companies listed on the Tehran Stock Exchange (2009-2023) were analyzed using fixed-effects Feasible Generalized Least Squares (FGLS) regression. The dependent variables were return on assets (ROA) and return on equity (ROE). The independent variables included firm-specific factors (e.g., leverage, sales growth) and macroeconomic factors (e.g., GDP, inflation). Diagnostic tests, including unit root, cointegration, and heteroskedasticity tests, were conducted.

Results indicated that GDP, money supply, and sales growth were positively associated with profitability. Conversely, interest rates, exchange rates, inflation, government expenditure, leverage, P/E ratio, and liquidity ratios exhibited negative associations. The effects of firm size and tax revenue were mixed. The models accounted for 69-89% of the variation (R-squared), with significant F-statistics (P<0.001). The hypotheses were confirmed, partially supported, or contradicted, as summarized.

The profitability of Iranian pharmaceuticals is susceptible to macroeconomic volatility and firm-specific strategies. It is imperative that policies are implemented to stabilize exchange rates and promote domestic production to enhance sustainability.