Profitability of electrical contractors using financial and economical data: The effect of company's size

Empirical investigations of the relationship between firm size and profitability in industrial economies in the past have given varying results. Some studies have found either a weak negative relationship or none at all; others have found a positive association that continues, or either disappears or reverses itself among the firms with the largest assets. A closer investigation of the question of large or small enterprises reveals that the different lines of research and the different results need not necessarily contradict each other. Different authors use different samples, industry groups, time horizons, and indicators. If they were to pose identical questions and apply similar theoretical as well as empirical methodologies they would have possibly come up with consistent answers. According to some electrical contractors who are members of the Federated Electrical Contractors (FEC), electrical contractor firms may experience a lack of profitability as the firm grows in size. Under these conditions, statistical models are developed to study the firm's size-profitability relationship. The two main objectives of this research are: (1) to identify the most important determinants of profitability for electrical contractors, and to identify the economic indicators that would measure the general and the specific construction industry economies in the U.S.A., and (2) to develop statistical models that explain the firm's size-profitability relationship based on financial and economical data, and identify the optimal size of electrical contractors. The findings contradict the conventional wisdom both among laymen and in parts of the economics literature that large firms are inherently more profitable than small and medium size firms. Being in the middle with sales between 32 and 37 million dollars may be more profitable. The research objectives were achieved, and the developed models assisted in determining the optimal size for the electrical contractors. The research also provided modeling techniques in terms of determining the firm's size-profitability relationships.