Spitsin et al.

Economic Structures (2020) 9:9

https://doi.org/10.1186/s40008-020-0184-9

RESEARCH Open Access

Companies profitability under economic

instability: evidence from the manufacturing
industry in Russia
Vladislav Spitsin1,2, Marina Ryzhkova1,3, Darko Vukovic4,5* and Sergey Anokhin1,6

*Correspondence:
vdarko@hotmail.rs Abstract
4
Finance and Credit This study analyzes factors affecting the efficiency (profitability) of enterprises in for‑
Department, Faculty
of Economics, People’s eign, joint and domestic ownership in countries with unstable economy. The novelty
Friendship University of the study is that for the first time this kind of analysis has been carried out for the
of Russia (RUDN University), manufacturing industry in Russia, whose economy is characterized by the instability
Miklukho‑Maklaya str. 6,
Moscow 117198, Russia (crisis), external sanctions, and the internal trend for import substitution. Using a panel
Full list of author information data on 6134 enterprises operating across several industries in Russia over the period
is available at the end of the of 2012–2016, the article suggests that generally production efficiency and scale
article
efficiency positively affect profitability, whereas the share of borrowed capital, share of
fixed assets and rising interest rates exert negative effects. The contribution of external
financial factors is minimal, except for foreign and jointly owned firms. Production effi‑
ciency has a particularly pronounced effect for the automotive industry, machinery and
equipment manufacturing, and in the metal industry. In contrast, in the chemical, elec‑
trical and optical manufacturing, and in food processing industries, internal financial
factors emerge as a powerful predictor of performance. Firm ownership does not exert
a significant effect on the relationship between the variables of interest when the share
of borrowed funds is below 50%. When the share of borrowed capital exceeds 50%,
internal financial factors emerge as a particularly prominent predictor of profitability.
Keywords: Profitability, Enterprises in Russia, Foreign and joint ownership, Production
efficiency, Countries with unstable economies

1 Introduction
One of the main generally accepted indicators of enterprise performance is profitability.
It is of interest to owners of the enterprise and investors as an indicator of the increase
in business value and income generation, for managers of the enterprise in terms of the
development of the enterprise and its technical modernization, and for the state insofar
as the profit is subject to taxation. As the main indicator of the enterprise’s activity, it is
influenced by many factors that reflect both the production efficiency within the com-
pany and the influence of the resource and good markets.
We can assume the influence of two groups of factors affecting profitability:

© The Author(s) 2020. This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing,
adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and
the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material
in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material
is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the
permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creat​iveco​
mmons​.org/licen​ses/by/4.0/.
Spitsin et al. Economic Structures (2020) 9:9 Page 2 of 20

• internal factors of the enterprise, reflecting the structure of assets and liabilities,
technological features of production, the level of activity of production processes,
etc.;
• environmental factors, including both the market conditions for resources and
goods, as well as the circumstances prevailing in the economic system at the higher
levels (meso-, macro- and megatrends).

Regularities related to the profitability of enterprises are identified in various indus-

tries in both developed and developing countries, and extant research takes a special
interest in the dynamics of profitability indicators in unstable economic conditions. As
in a number of studies (Ahn 2008; Tang 2015; Jeanneret 2015; Griffin 2015; Ahmad et al.
2016; Spitsin et al. 2018), we use the term “economic instability” to refer to the volatility
of such external factors as the ruble exchange rate and interest rates (Vukovic et al. 2019;
Vukovic et al. 2020). We scrutinize the extent to which the outcome varies depending on
the form of ownership, be that domestic enterprises, foreign enterprises or enterprises
in the joint form of ownership.
A large number of economic studies are devoted to the analysis of factors affecting
the efficiency (profitability) of enterprises. At the same time, economists identify and
investigate various groups of factors affecting profitability. For example, in a classic study
(Capon et al. 1990), the researchers provided the results of a meta-analysis of 320 studies
that looked at 227 variables affecting the financial situation of an enterprise. According
to the study’s results, indicators such as industry concentration, market share, growth
size, capital investment intensity, and advertising intensity emerged as the main explana-
tory factors of financial performance.
A theoretical approach (the structure–conduct–performance paradigm) assumes a
direct impact of industry structure on profitability (Tirole 1988). A different approach
(the market-based paradigm) adds into consideration the strategic position of firms
within the industry (Welge and Al-Laham 2008). In addition, firm size, market share,
growth, age, advertising, R&D, patents and financial risk have been identified as empiri-
cal firm-specific determinants by the previous literature (e.g., Yurtoglu 2004; Chaddad
and Mondelli 2013). Firm-specific drivers of profitability are size and financial risk
(Gschwandtner and Hirsch 2018).
Very often the study of profitability considers 4 effects: firm, industry, country and
period effects. For example, the analysis may suggest that firm effects on profitability for
the 2005–2011 periods on the data of the international database of firms are stronger
under adversity, whereas industry effects become weaker. Similarly, country main and
interaction effects may be considered, with particular attention paid to the emerging
economies (Bamiatzi et al. 2016).
The profitability of the company is also associated with the share of the borrowed capi-
tal. There are a number of theoretical approaches to regulating the share of borrowed
capital in the capital structure of the enterprise:

• Static Trade-off Theory (Kraus and Litzenberger 1973) explains that the share of debt
depends on the balance of the costs and benefits. Unfortunately, there is no con-
sensus among researchers in understanding the content of costs and benefits. For
Spitsin et al. Economic Structures (2020) 9:9 Page 3 of 20

instance, it may be seen as a balance between the dead-weight costs of bankruptcy

and the tax saving benefits of debt. The theory also allows considering agency prob-
lems and debt agency conflicts, but does not take into account the information asym-
metry and the role of distribution of information in conflicts between insiders and
outsiders (Yapa Abeywardhana 2017).
• Pecking Order Theory (Myers and Majluf 1984) suggests that the cost of financing
increases with asymmetric information, which results in prioritizing the company’s
sources of financing from internal financing, to debt, to raising equity. Debt issue is a
signal of successful management of a company that can cope with debt pressures and
can overcome the agency conflict between managers and owners (Yapa Abeyward-
hana 2017). Empirical tests of the Pecking Order Theory indicate that it receives less
support than the Static Trade-off Theory (Shyam-Sunder and Myers 1999).
• Market Timing Hypothesis (Baker and Wurgler 2002), in contrast to the previously
mentioned theories, suggests that the firm tends to issue equity when its market
value is rising and vice versa. The capital structure develops under the influence of
market conditions, and the capital market does not move to target leverage. It should
be noted, however, that a number of researchers have shown the impact of market
timing on the firms’ capital structure to disappear in the long run (Hovakimian 2006;
Alti 2006).
• There are some other potentially relevant brand new theories (including, e.g., credit
rating–capital structure hypothesis (Kisgen 2006), but at this point it is hard to inves-
tigate them empirically in the Russian context due to data challenges.

Studies of the effect of the share of borrowed capital on the profitability of enterprises
in various industries and in different countries have different results. A number of works
claim a positive relationship of profitability with the level of short-term debt and in some
cases with long-term debt (Negasa 2016).
At the same time, they distinguish the effect of short-term and long-term borrowed
capital on ROA (return on assets). If in the short-term period the relationship is posi-
tive and significant, in the long-term period the significance of the relationship does not
exist (Jain et al. 2017), or even changes the sign (Vaicondam and Ramakrishnan 2017).
Other researchers find the opposite. In the Vietnamese data (Vy and Tra 2016; Le and
Phan 2017), the relationship between profitability and leverage is negative, and is robust
to the inclusion of control variables as well as firm and year fixed effects. It is a very
remarkable finding for Vietnamese enterprises that the smaller the firms, the more pro-
found the relationship. Small and profitable firms tend to have higher incentive to use
less debt. In contrast, large firms seem to be indifferent in their debt use due to having
greater access to other sources of finance, as well as a larger base of collateral assets.
The same relationship is also observed in Thailand (Vithessonthi and Tongurai 2015a, b).
Also, along with the negative relationship of debt to total assets and ROE for Vietnamese
companies, there is a positive relationship with growth of sales and size of enterprises
(Vu and Phan 2016).
According to the meta-analysis (Capon et al. 1990), the impact of the firm’s debt load
(debt influence on the level of firm) on its financial performance is rather negative (90
out of 147 studies, yet dependencies are insufficient).
Spitsin et al. Economic Structures (2020) 9:9 Page 4 of 20

In a Chinese study (Anwar and Sun 2013), the relationship between the level of debt
of local firms and the presence of foreign firms on the market was investigated. An
increase in foreign presence raises the debt of domestic firms, and its impact on firm
investment is also positive. Overall, the impact of foreign presence on the leverage of
domestic firms in China’s manufacturing sector is negative and relatively large. If we
split the firms in two groups (domestically oriented and internationally oriented) as
Vithessonthi and Tongurai (2015a, b) did for Thailand, the effect of leverage on per-
formance will be different. For domestically oriented firms it is negative, whereas a
positive relationship exists for the internationally oriented ones.
Next, we analyze existing approaches to assessing the effects of attracting foreign
investment in the host country. In a sample of Vietnamese firms (Aitken and Harrison
1999), it was found that foreign equity participation was positively correlated with
plant productivity but only for small enterprises. On the other hand, for domestically
owned companies foreign investment had a negative impact on their productivity.
The net impact of foreign investment, taking into account these two offsetting effects,
is quite small. The gains from foreign investments appear to be entirely captured by
joint ventures. In the Ivory Coast setting (Harrison and McMillan 2003) domestic
firms were found to be more credit constrained than foreign firms, and borrowing by
foreign firms exacerbated domestic firm credit constraints.
Crisis phenomena in the economy affect foreign and local firms differently. It is nat-
ural to assume that foreign multinationals are less linked into the domestic economy,
and so are more likely to leave once the economy is hit by a negative shock. But in the
case of Ireland (Godart et al. 2012) it is not confirmed: international firms do not flee
from Ireland in crisis.
On the contrary, import competition and foreign direct investment discourage
entry and stimulate exit of domestic entrepreneurs, the phenomenon referred to as
the “crowd out effect” (De Backer and Sleuwaegen 2003). However, the empirical
results also suggest that this crowding out effect may be moderated or even reversed
in the long run due to the long-term positive effects of FDI on domestic entrepreneur-
ship as a result of learning, demonstration, networking and linkage effects between
foreign and domestic firms. Such effects have been identified not only in developed
countries (Belgium), but also in the post-socialist countries (Czech Republic) (Kosová
2010). At the same time, the impact of foreign presence on the leverage of domestic
firms is negative. In China’s manufacturing, an increase in foreign presence increases
the debt of value maximizing domestic firms (Anwar and Sun 2015).
Speaking of the relationship of capital structure of domestic, foreign and joint own-
ership with profitability, one can refer to the data from an Indian study (Chhibber and
Majumdar 1999), in which after controlling for a variety of firm and environment-spe-
cific factors, firms display relatively superior performance only when property rights
belong to foreign owners at ownership levels providing unambiguous control at 51%.
Also, the relationship between foreign entry and profitability of domestic firms has an
inverted U-shape (Fu and Wu 2013). Furthermore, we also find that the effect of for-
eign entry on domestic firm profitability varies according to the ownership structure
of domestic firms and the export intensity of foreign newcomers.
Spitsin et al. Economic Structures (2020) 9:9 Page 5 of 20

An interesting correlation is observed in Canada regarding the profitability of local

firms and firms owned by the US (Shapiro 1983). It is found that US-controlled firms
were more profitable than either Canadian- or other foreign-controlled firms. In addi-
tion, the study suggested that the higher the degree of non-resident (presumably Ameri-
can) ownership, the higher the profitability of the US-controlled firms. The reverse
was true of other foreign firms. These results for the US firms are consistent with the
Hymer–Caves and internalization approaches to the multinational corporation.
When studying the influence of factors on profitability in countries with unstable
economies, economists, among other factors, single out and investigate the influence of
exchange rates.
In Korea (Ahn 2008), small and medium firms are more susceptible to the exchange
rate fluctuations than large firms. More importantly, profitability of a more productive
firm is found to be less sensitive to the exchange rate fluctuations than that of a less pro-
ductive firm. Also, there is a relationship between firm size and exposure effects, which
also shows that lagged exchange rate changes have significant exposure effects on firm
returns (Tang 2015).
An analysis of 84 developed and emerging economies over the 1996–2012 period
(Jeanneret 2015) describes effects of exchange rate uncertainty on foreign direct invest-
ment. Firms face a choice between participating in foreign markets through exports
or investing abroad to relocate production. The most productive firms invest abroad
when exchange rate volatility is low and export otherwise, whereas the least produc-
tive firms invest abroad when the volatility is high. Other authors (Ahmad et al. 2016)
confirm that exchange rate depreciation affects the volume of FDI and promotes growth
in the long run. Economic development and inflows are also associated with exchange
rates. In Nigeria (Zakari 2017) there was a strong positive relationship between FDI and
exchange rate on the one hand, and a weak positive relationship between FDI and GDP
on the other hand.
In Colombia (Griffin 2015) no strong evidence was found for the conjecture that real
appreciation has, on average, negatively affected the profitability of manufacturing firms.
On the contrary, real appreciation may have increased firms’ profitability by reducing
the cost of imported inputs as Colombian manufacturing firms become more domesti-
cally oriented.
Taken as a whole, the literature review suggests that the effects of financial and
non-financial factors on firm profitability in the developing countries have not been
documented sufficiently and are poorly understood. Moreover, despite the key role
of foreign owned and joint enterprises in stimulating the domestic economic activ-
ity, extant research rarely distinguishes between the firms based on ownership. Jointly
owned enterprises are largely ignored by the received literature. Given the increased
government reliance on the technology spillover initiated through participation of for-
eign and jointly owned firms in the domestic economy, this is a major shortcoming that
we try to address in this paper.
In this work, a comprehensive study of the influence of factors on the profitability of
enterprises in countries with unstable economies is being conducted. The main division
of enterprises is carried out according to the forms of ownership (enterprises in the Rus-
sian (RO), joint (JO) and foreign (FO) ownership), and it is used in all sections of the
Spitsin et al. Economic Structures (2020) 9:9 Page 6 of 20

investigation. Additional divisions are carried out by the branches of the manufacturing
industry and by the share of borrowed capital in the liabilities side of the balance. Addi-
tionally, the impact on the profitability of internal and external factors in an unstable
economy is being tested.
The object of the research is manufacturing enterprises in Russia.
The uniqueness of the situation in Russia in 2012–2016 is that:

• For the study period the Russian economy was characterized by instability and cri-
sis manifestations: a strong depreciation of the national currency, a decline in real
income of the population, etc.;
• During the study period, there were political tensions, and economic sanctions were
imposed on the country with respect to the export and import of high-tech goods.
In response, Russia also imposed sanctions, primarily on the products of the food
industry.

In this paper, it is planned to assess the impact of this unique situation on the profit-
ability of enterprises in the RO, JO and FO in the context of manufacturing industries.

2 Methodology
According to the previously discussed literacy, in this paper the following hypotheses
will be tested:

Hypothesis 1. Financial and economic factors have a different impact on enterprises

in RO, JO and FO in crisis conditions.
Hypothesis 1.1. Financial factors (internal and external) have a stronger impact on
enterprises in FO and JO in comparison with enterprises in RO in crisis conditions.
Hypothesis 1.2. Economic factors have a stronger impact on enterprises in RO in
comparison with enterprises in FO and JO in crisis conditions.
Hypothesis 2. Economic and financial factors have a stronger effect on the net profit-
ability of assets of enterprises in FO and JO than of enterprises in RO in each of the
analyzed manufacturing industries.
Hypothesis 3. Financial factors have a stronger impact on the net profitability of
enterprises’ assets as the share of borrowed capital increases.

The object of research includes manufacturing enterprises operating in the Russian

Federation. The total number of enterprises included in the sample is 6134. Enterprises
are grouped in three ways:

• by ownership forms—enterprises in Russian (RO), foreign (FO) and joint (JO) own-
ership;
• by branches of the manufacturing industry;
• by the share of borrowed capital in the balance sheet.

Data on financial indicators of enterprises were obtained from the SPARK Informa-
tion System. We gathered this information for the period from 2012 to 2016. The sam-
ple of enterprises of the automotive industry was formed according to the criterion of
Spitsin et al. Economic Structures (2020) 9:9 Page 7 of 20

the revenue in 2012–2016 of at least 100 million rubles annually. All enterprises of the
automotive industry that met this criterion were included in the sample (solid sam-
ple—6208 enterprises). Further, some enterprises with missing values of indicators or
having strong deviations of certain indicators (for example, the absolute value of net
profitability of assets more than 100% or the share of borrowed capital more than
300% of the balance sheet assets) were excluded from the study.
In accordance with these criteria, the following sample of the enterprises was formed:

• 470 enterprises in the foreign ownership;

• 294 enterprises in the joint ownership;
• 5370 enterprises in the Russian ownership;
• In total—6134 enterprises (98.8% of solid sample).

We used the panel data on 30670 (6134*5) firm-year observations.

The inflation data were obtained from the reports of the Federal State Statistics Ser-
vice, the data on average annual exchange rates were obtained from the ruxpert.ru,
and the data on currency exchange rates at the end of the year and interest rates on
loans were obtained from the website of the Central Bank of the Russian Federation.

3 Models and variables

According to the recent literature (Vaicondam and Ramakrishnan 2017; Chatterjee
2012; Habrosh 2017), the dependent variable is explained by the net profitability of
assets. This indicator characterizes the profitability and efficiency of enterprises.
Independent variables For the independent variables we used:

A. Control variables (Vaicondam and Ramakrishnan 2017; Chatterjee 2012; Habrosh

2017):
1. Size of the enterprise calculated as a natural logarithm of revenue. Revenue was
adjusted for the inflation index;
2. Fixed assets share calculated as the share of fixed assets in total assets.
3. Current liquidity ratio.
B. Production efficiency
4. Gross profitability of sales—this variable characterizes production efficiency and is
defined as the ratio of gross profit (the difference between revenue and production
cost) to revenue.
C. Financial factors
5. Share of the borrowed capital, which is defined as the ratio of borrowed capital to
the liabilities side of the balance. It allows assessing the impact of borrowed capi-
tal on the net return on assets and the consistency of the obtained results with the
Static Trade-off Theory and the Pecking Order Theory (Kraus and Litzenberger 1973;
Myers and Majluf 1984).
6. Average interest rates on short-term (up to 1 year) loans to enterprises at the end of
the year. Note that in the conditions of the crisis (2014–2015) there was an increase
in interest rates on loans;
Spitsin et al. Economic Structures (2020) 9:9 Page 8 of 20

7. Average annual exchange rate of the ruble to the dollar. During the crisis period of
2014–2015, the ruble exchange rate to the dollar increased in absolute terms, i.e.,
the ruble fell. In 2012, the exchange rate was 31.08 rubles/dollar, and in 2016 the rate
became 66.08 rubles/dollar;
8. Share of foreign owners (ShareFO), which corresponds to the share of foreign owners
in the authorized capital of the enterprise. For RO (domestic) enterprises ShareFO
equals 0, for enterprises in FO ShareFO equals 1, for enterprises in JO ShareFO it is
in the range from 0 to 1;
9. Ruble’s depreciation is the difference of the ruble–dollar exchange rates at the end
of the current and the end of the previous year. If this difference is greater than 0,
the ruble rate has decreased relative to the dollar. If this difference is less than 0, the
ruble rate has increased relative to the dollar.

The variables exhibited reasonable correlations as could be seen in Table 1.

A strong correlation (0.75) is present only between the variables: ruble’s deprecia-
tion and average interest rates. However, in its pure form, the first variable (ruble’s
depreciation) is not used in models, only when multiplied with ShareFO and the share
of borrowed capital. There is no strong correlation between other variables, and thus
we can use them in the regression analysis (in Table 2).
To test the differences between enterprises in the RO and enterprises with foreign
capital (enterprises in FO and JO), the following variables were additionally used in
the models (see Table 2):

D. Production efficiency
10. Gross profitability of sales * ShareFO—calculated by multiplying the level of gross
margin of sales to the share of foreign capital in the capital of the enterprise (FS 0 for
RO, 1 for FO).
E. Financial factors
11. Share of borrowed capital * ShareFO;
12. Share of borrowed capital * ShareFO * Ruble’s depreciation;
13. Average interest rates * ShareFO;
14. Average annual exchange rate * ShareFO.

3.1 Models and estimation

Given the multi-year nature of our data, we used panel data techniques to test our
hypotheses.
Diagnosis of the panel model with control variables for the sample of 6134 enter-
prises showed the following:

1. a simple regression model based on the method of least squares is estimated as not

test statistic (pW ≪ 0.001), as well as models with random effects based on Breusch–
adequate, with preference being given to models with fixed effects based on Wald

Pagan test statistic (pB-P ≪ 0,001);

 Spitsin et al. Economic Structures
(2020) 9:9

Table 1 Descriptive statistics and correlations

Variables Mean Min Max Std. dev Correlation matrix
1 2 3 4 5 6 7 8 9

Size of the enterprise 20.11 18.08 26.43 1.25 1.00

Fixed assets share 23.50 − 3.23 99.59 19.14 0.06*** 1.00
Current liquidity ratio 2.76 0.00 977.26 11.89 − 0.03*** − 0.03*** 1.00
Gross profitability of sales 16.93 − 172.01 106.17 15.61 0.11*** 0.02*** 0.07*** 1.00
Share of borrowed capital 62.33 0.00 298.60 32.72 0.05*** − 0.13*** − 0.19*** − 0.25*** 1.00
Average interest rates 12.15 10.60 13.95 1.25 − 0.01* − 0.01 0.00 0.01* 0.03*** 1.00
Average annual exchange rate 45.74 31.08 66.08 14.88 − 0.02** − 0.03*** 0.02*** 0.03*** 0.00 0.38*** 1.00
Ruble’s depreciation 5.69 − 12.23 23.53 12.86 0.00 0.01 − 0.01 0.00 0.03*** 0.75*** − 0.18*** 1.00
ShareFO 0.11 0.00 1.00 0.29 0.22*** 0.03*** − 0.01 0.12*** 0.03*** 0.00 0.00 0.00 1.00
*** p < 0.001, ** p < 0.01, * p < 0.05, p < 0.10
Page 9 of 20
Spitsin et al. Economic Structures (2020) 9:9 Page 10 of 20

Table 2 Types of investigated models of net return on assets

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

Intercept V V V V V V V
Size of the enterprise V V V V V V V
Fixed assets share V V V V V V V
Current liquidity ratio V V V V V V V
Gross profitability of sales – V V V V V V
Share of borrowed capital – – V V V V V
Average interest rates – – – V V V V
Average annual exchange rate – – – V V V V
Gross profitability of sales * ShareFO – – – – V V V
Share of borrowed capital * ShareFO – – – – – V V
Share of borrowed capital * ShareFO – – – – – V V
* Ruble’s depreciation
Average interest rates * ShareFO – – – – – – V
Average annual exchange rate * – – – – – – V
ShareFO

2. Hausman test statistic shows (chisq = 1491.9, df = 3, p value < 2.2e−16) pH ≪ 0.001.
Low p values indicate a weak null hypothesis about the adequacy of the model with
random effects, giving the advantage to models with fixed effects. That is, the prefer-
ence should be given to models with fixed effects.

Specifically, we utilized fixed effects estimation procedure. In all, we report seven

tested models.
To minimize the multicollinearity concerns, all predictor variables are standardized
(Marquardt 1980).

Option 1 Realization of models No. 1–4 for the full sample of enterprises (6134) and
separately for samples of enterprises in the FO, RO and JO:
Full sample of enterprises of all forms of ownership;

1.1 Enterprises in FO;

1.2 Enterprises in JO;
1.3 Enterprises in RO.

Option 2 Implementation of models No. 1–7 by branches of the manufacturing indus-

try. Within the framework of this paper, the following industries were investigated
(according to OKVED 1.2., which corresponds to the European classification of Eco-
nomic Activities NACE Rev. 1.1.):

2.1 DM (automotive industry)—as part of the DM manufacture of transport equip-

ment;
2.2 DK—manufacture of machinery and equipment n.e.c.;
2.3 DG—manufacture of chemicals, chemical products and man-made fibers;
2.4 DJ—manufacture of basic metals and fabricated metal products;
Spitsin et al. Economic Structures (2020) 9:9 Page 11 of 20

2.5 DL—manufacture of electrical and optical equipment;

2.6 DA—manufacture of food products, beverages and tobacco.

Option 3 Implementation of models No. 1–7 for samples of enterprises with different
shares of borrowed capital:

3.1Full sample of enterprises

3.2Enterprises with a share of borrowed capital for 2012–2016 less than 50% annually
(< 50%);
3.3Enterprises with a share of borrowed capital for 2012–2016 annually exceeding 50%
(> 50%).

4 Results and discussion

4.1 Option 1
The study of the influence of ownership on the net profitability of assets.
The four regression models formed above are presented in Table 3. The coefficients
and standard errors are given according to model 4.
For all four cases (full sample, enterprises in FO, enterprises in JO, enterprises in RO),
a highly significant impact on the net return on assets of control variables was revealed:

• positive impact—enterprise size;

Table 3 Regression results (fixed effects estimates, robust estimates). Source: calculated
by the authors according to data (SPARK: Information system. Interfax (Russia) 2018)
Full sample Enterprises in FO Enterprises in JO Enterprises in RO

Size of the enterprise 6.80 (0.29)b 7.40 (1.43)b 5.48 (1.48)b 6.90 (0.28)b
b a
Fixed assets share − 1.25 (0.14) − 2.25 (0.77) − 1.38 (0.73) − 1.17 (0.15)b
Current liquidity ratio − 0.10 (0.09) − 3.64 (1.58) − 0.53 (1.61) − 0.09 (0.09)
Gross profitability of sales 5.17 (0.22)b 7.21 (1.02)b 4.02 (0.99)b 5.09 (0.22)b
Share of borrowed capital − 6.44 (0.23)b − 8.30 (0.88)b − 8.64 (1.30)b − 5.96 (0.24)b
b b b
Average interest rates − 0.64 (0.05) − 3.11 (0.28) − 1.58 (0.26) − 0.37 (0.04)b
b a
Average annual exchange rate 0.04 (0.05) 1.49 (0.30) 0.91 (0.29) − 0.14 (0.05)a
b a
Intercept 5.89 (0.00) − 1.88 (1.04) 2.19 (0.74) 6.75(0.03)
[p < 0.001]
Model 1 R2 0.070 0.051 0.077 0.077
Model 2 R2 0.165 0.149 0.140 0.178
Model 3 R2 0.266 0.277 0.240 0.273
Model 4 R2 0.272 0.330 0.262 0.276
∆R2 of production ­efficiencya 0.095 0.098 0.063 0.101
∆R2 of financial f­ actorsb 0.107 0.181 0.122 0.098
Including—internal 0.101 0.128 0.100 0.095
External 0.006 0.053 0.022 0.003
Number of enterprises in the sample 6134 470 294 5370

models (models No. 1–4) are highly significant for all samples (p ≪ 0.0001)
Standard errors are in parentheses. The coefficients and standard errors are given according to model 4. All constructed

a
∆R2 of production efficiency is calculated as the difference of R2 (model 2) and R2 (model 1) or it is equal ∆R2 (model 2)
b
∆R2 of internal financial factors is calculated as the difference of R2 (model 3) and R2 (model 2) or it is equal ∆R2 (model 3).
R2 of external financial factors is calculated as the difference of R2 (model 4) and R2 (model 3) or it is equal ∆R2 (model 4)
Spitsin et al. Economic Structures (2020) 9:9 Page 12 of 20

• negative impact—the share of fixed assets in assets.

• Among the tested variables, we identified:
• highly significant positive impact of gross profitability of sales;
• highly significant negative impact of the share of borrowed capital;
• highly significant negative impact of the average interest rates on bank loans;
• the average annual exchange rate of the ruble to the dollar has a positive effect on the
net profitability of enterprises in FO and JO (i.e., when the ruble exchange rate falls,
their profitability increases) and negatively on enterprises in the RO (i.e., when the
ruble exchange rate falls, their profitability decreases).

For enterprises in FO and JO, the main contribution to R2 growth is provided by finan-
cial factors: internal and external for enterprises in FO, mainly internal—for enterprises
in JO. This confirms hypothesis 1.1.
For enterprises in RO, the contribution to the increase in R2 (to the increase in the
explanatory power of the model) is comparable (approximately the same) to the pro-
duction efficiency and domestic financial factors. At the same time, the contribution of
external financial factors is minimal, although they are significant. We cannot say that
the production efficiency gives a greater R2 spillage of enterprises in the RO, since this
increase is comparable (approximately equal) to the growth of enterprises in the FO.
Thus, hypothesis 1.2. is not confirmed. Also, production efficiency has a much smaller
impact on R2 growth at enterprises in JO.

4.2 Option 2
Study of the effect of manufacturing industries on profitability.
The regression models for 6 branches of the manufacturing industry (types of eco-
nomic activities) are presented in Table 4. The number of enterprises of each form of
ownership for each type of economic activity is indicated at the bottom of the table. The
coefficients and standard errors are given according to model 7.
Common to all the studied industries are the following consistent patterns on the
influence of factors on the profitability of assets:

• high significant positive impact of size of the enterprise;

• highly significant positive impact of gross profitability of sales (a significant increase
in the explained variation R2);
• highly significant negative impact of the share of borrowed capital (a significant
increase in the explained variation R2).

At the same time, other factors affect the profitability of the assets of the studied
industries in different ways. In particular, the share of fixed assets in assets has a highly
significant negative impact on the profitability of the DK, DJ, DL, DA subsections. The
value of average interest rates on loans to legal entities has a highly significant negative
effect on the profitability of enterprises of all industries except DG, but its effect does
not lead to a significant increase in the explained variation (R2) except for the automo-
tive industry (DM).
Spitsin et al. Economic Structures (2020) 9:9 Page 13 of 20

Table 4 Net profitability of assets. Source: calculated by the authors according to data
(SPARK: Information system. Interfax (Russia) 2018)
Variable DM DK DG DJ DL DA

Size of the enterprise 6.94 (1.22)b 8.14 (0.61)b 7.20 (0.94)b 6.35 (0.59)b 7.44 (0.97)b 5.69 (0.47)b
Fixed assets share − 0.56 (0.65) − 1.31 (0.37)b − 0.90 (0.39) − 1.54 (0.32)b − 2.12 (0.50)b − 1.10 (0.22)b
Current liquidity ratio 3.56 (3.63) − 0.12 (1.46) − 0.09 (0.09) − 1.62 (0.70) − 0.22 (0.11) 0.16 (0.20)
Gross profitability of 6.65 (1.10)b 5.70 (0.39)b 4.70 (0.53)b 5.12 (0.55)b 4.74 (0.51)b 4.91 (0.37)b
sales
Share of borrowed − 4.59 (1.06)b − 5.95 (0.55)b − 5.84 (0.58)b − 5.59 (0.48)b − 6.20 (0.56)b − 6.76 (0.42)b
capital
Average interest rates − 1.36 (0.21)b − 0.58 (0.10)b − 0.32 (0.13) − 0.77 (0.11)b − 0.48 (0.12)b − 0.44 (0.08)b
a
Average annual 0.71 (0.23) − 0.04 (0.11) 0.26 (0.15) 0.08 (0.12) − 0.23 (0.13) − 0.12 (0.09)
exchange rate
Gross profitability of − 1.22 (0.26)b − 0.39 (0.14)a − 0.46 (0.16)a − 0.61 (0.14)b − 0.43 (0.17) − 0.49 (0.10)b
sales * ShareFO
Share of borrowed 0.05 (0.60) − 1.64 (0.44)b − 2.09 (0.71)a − 0.65 (0.46) 0.84 (0.44) − 0.61 (0.38)
capital * ShareFO
Share of borrowed − 1.47 (0.22)b − 0..80 (0.23)b − 0.94 (0.18)b − 0.85 (0.15)b − 1.14 (0.26)b − 0.43 (0.17)
capital * ShareFO *
Ruble’s deprecia‑
tion
Average interest rates 2.61 (0.85)a − 0.01 (0.48) − 0.63 (0.66) − 0.42 (0.46) 1.84 (0.49)b − 0.42 (0.34)
* ShareFO
Average annual 1.00 (0.25)b 0.58(0.15)b 0.49 (0.16)a 0.38 (0.15) 0.30 (0.19) 0.08 (0.12)
exchange rate *
ShareFO
Intercept 4.39 (0.64)b 7.49 (0.21)b 5.01 (0.35)b 6.93 (0.20)b 6.17 (0.22)b 5.41 (0.10)b
Model 1 R2 0.097 0.120 0.062 0.080 0.084 0.040
Model 2 R2 0.277 0.238 0.146 0.198 0.158 0.111
Model 3 R2 0.330 0.327 0.248 0.284 0.2.44 0.234
Model 4 R2 0.369 0.332 0.252 0.292 0.251 0.238
Model 5 R2 0.403 0.334 0.256 0.297 0.253 0.243
Model 6 R2 0.468 0.354 0.292 0.313 0.281 0.247
Model 7 R2 0.508 0.358 0.298 0.315 0.288 0.247
∆R2 of production 0.214 0.12 0.088 0.123 0.076 0.076
­efficiencya
∆R2 of financial 0.197 0.118 0.148 0.112 0.128 0.131
­factorsb
Including—internal 0.118 0.109 0.138 0.102 0.114 0.127
External 0.079 0.009 0.01 0.01 0.014 0.004
Number of enterprises
Total 303 1070 728 1113 869 2051
FO 56 78 87 73 52 124
JO 25 51 44 58 43 73
RO 222 941 597 982 774 1854
Regression results (fixed effects estimates, robust estimates)

models (models no. 1–7) for each type of economic activities are highly significant (p ≪ 0.0001)
Standard errors are in parentheses. The coefficients and standard errors are given according to model 7. All constructed

a
∆R2 of production efficiency = R2 (model 2) − R2 (model 1) + R2 (model 5) − R2 (model 4). Or it is equal to the sum of ∆R2
(model 2) and ∆R2 (model 5)
b
∆R2 of internal financial factors = R2 (model 3) − R2 (model 2) + R2 (model 6) − R2 (model 5). Or it is equal to the sum of ∆R2
(model 3) and ∆R2 (model 6). R2 of external financial factors = R2 (model 4) − R2 (model 3) + R2 (model 7) − R2 (model 6). Or it
is equal to the sum of ∆R2 (model 4) and ∆R2 (model 7)
Spitsin et al. Economic Structures (2020) 9:9 Page 14 of 20

In all sectors, except the food industry, a highly significant negative impact on enter-
prises with foreign participation has been revealed on the factor “Share of borrowed
capital * ShareFO * Ruble’s depreciation”, which leads to a significant increase in the
explained variation (R2). This fact suggests the presence of foreign currency loans or bor-
rowed funds at enterprises in FO and JO of all sectors, except for the food industry.
We identified significant differences in the DM subsection (automobile industry) from
other industries both in terms of the share of explained variations (R2 = 50.8%) and in
terms of the influence of variables, including those associated with the share of for-
eign owners, and their contribution to the increase in R2. In this subsection, a signifi-
cant increase in the explained variation (R2) is provided by external factors (dynamics of
interest rates on loans), as well as factors related to enterprises in foreign and joint own-
ership. It should be noted that the crisis was the most acute for enterprises in FO and JO
of this subsection, and most of them showed losses in 2014–2015.
The findings partially confirm hypothesis No. 2 in relation to 5 branches: DM (auto-
mobile industry), DK, DL, DJ, DG. For these branches, enterprises with the participation
of foreign capital are characterized by increasing negative impact on the profitability of
the share of borrowed capital but weakening the positive impact of gross profitability of
sales. In the branch DA (food industry) the share of borrowed capital (share of borrowed
capital * ShareFO * Ruble’s depreciation) has a significant negative impact (− 0.43 *), but
it is significantly weaker than that of other foreign trade activities.
We also found that production efficiency provides a significant increase in R2, com-
parable to the increase in R2 from financial factors in the following industries: DM, DK,
DJ. Thus, in a crisis, production efficiency is important in these industries. On the con-
trary, the main contribution to the growth of R2 comes from internal financial factors in
the DG, DL, DA industries. The contribution of production efficiency in these industries
is significantly lower. External financial factors provide a significant increase in R2 only
in the automotive industry (DM). Perhaps this is because in this industry the share of
enterprises in FO and JO in the total value of production is high (about 63%). In other
industries, the contribution of external financial factors to R2 growth is minimal.

4.3 Option 3
4.3.1 Study of the impact of the share of borrowed capital on profitability
The regression models for the samples of enterprises with different shares of borrowed cap-
ital are presented in Table 5. The number of enterprises for each sample is indicated at the
bottom of the table. The coefficients and standard errors are given according to model 7.
The strength of the influence of the tested variables and the significance of the influence
differ significantly depending on the amount of borrowed capital in the balance sheet.
If the share of borrowed capital does not exceed 50%, the main impact on the net
return on assets is provided by the control variables (R2—16.9%) and production effi-
ciency (R2 increase—10.2%). The remaining variables (financial factors) provide R ­2
growth by only 3.5%, including: internal financial factors—2.3%, external financial fac-
tors—1.2%. There are no differences in ownership of this group of enterprises. Variables
with * ShareFO, associated with the share of foreign owners are insignificant. The total
share of the explained variation in this case is small (R2 = 30.7%) and practically does not
differ from the full sample.
Spitsin et al. Economic Structures (2020) 9:9 Page 15 of 20

Table 5 Regression results (fixed effects estimates, robust estimates). Source: calculated
by the authors according to data (SPARK: Information system. Interfax (Russia) 2018)
Variable Full sample Share of borrowed Share of borrowed
of enterprises capital less 50% capital exceeds
50%

Size of the enterprise 6.84 (0.30)b 13.77 (0.67)b 3.24 (0.33)b

b b
Fixed assets share − 1.25 (0.14) − 1.97 (0.31) − 1.06 (0.19)b
b
Current liquidity ratio − 0.10 (0.10) − 0.21 (0.06) 0.58 (0.45)
Gross profitability of sales 5.14 (0.22)b 5.78 (0.48)b 3.47 (0.28)b
b b
Share of borrowed capital − 6.10 (0.23) − 5.59 (0.52) − 9.46 (0.52)b
b
Average interest rates − 0.61 (0.05) − 0.19 (0.08) − 0.74 (0.06)b
b
Average annual exchange rate 0.03 (0.05) − 0.63 (0.09) 0.49 (0.07)b
b
Gross profitability of sales * ShareFO − 0.64 (0.06) − 0.16 (0.19) 0.20 (0.13)
Share of borrowed capital * ShareFO − 0.66 (0.22)a 0.70 (0.43) − 0.55 (0.34)
Share of borrowed capital * ShareFO * − 0.87 (0.09)b 0.06 (0.14) − 1.39 (0.17)b
Ruble’s depreciation
Average interest rates * ShareFO 0.34 (0.28) 1.21 (0.69) − 0.07 (0.29)
Average annual exchange rate * ShareFO 0.47 (0.07)b − 0.03 (0.14) 0.34 (0.10)b
b b
Intercept 5.88 (0.04) 5.10 (0.65) 9.04 (0.38)b
2
Model 1 R 0.070 0.169 0.048
Model 2 R2 0.165 0.271 0.125
Model 3 R2 0.266 0.294 0.296
Model 4 R2 0.272 0.303 0.307
Model 5 R2 0.277 0.304 0.313
Model 6 R2 0.295 0.304 0.358
Model 7 R2 0.298 0.307 0.360
∆R2 of production ­efficiencya 0.1 0.103 0.083
∆R2 of financial f­ actorsb 0.128 0.035 0.229
Including—internal 0.119 0.023 0.216
External 0.009 0.012 0.013
Number of enterprises
Total 6134 1430 3073
FO 470 93 226
JO 294 67 143
RO 5370 1270 2704

models (models no. 1–7) are highly significant for all samples (p ≪ 0.0001)
Standard errors are in parentheses. The coefficients and standard errors are given according to model 7. All constructed

a
∆R2 of production efficiency = R2 (model 2) − R2 (model 1) + R2 (model 5) − R2 (model 4). Or it is equal to the sum of ∆R2
(model 2) and ∆R2 (model 5)
b
∆R2 of internal financial factors = R2 (model 3) − R2 (model 2) + R2 (model 6) − R2 (model 5). Or it is equal to the sum of ∆R2
(model 3) and ∆R2 (model 6). R2 of external financial factors = R2 (model 4) − R2 (model 3) + R2 (model 7) − R2 (model 6). Or it
is equal to the sum of ∆R2 (model 4) and ∆R2 (model 7)

If the share of borrowed capital exceeds 50%, the variables associated with the share
of borrowed capital and the share of foreign owners have a major impact on the net
return on assets:

• Share of borrowed capital increases R2 by 17.1%;

• Share of borrowed capital * ShareFO * Ruble’s depreciation increases R2 by 4.5%.
Spitsin et al. Economic Structures (2020) 9:9 Page 16 of 20

Thus, in this case, financial factors provide an increase of R2 22.9%, including: inter-
nal financial factors—21.6%, external financial factors—1.3%. The total share of the
explained variation in this case is significantly higher (R2 = 36%).
Thus, hypothesis No. 3 is confirmed, and the main role is played by domestic finan-
cial factors with an increase in the share of borrowed capital. It was revealed that with
the deterioration of the liabilities structure of the balance sheet (increase in the share of
borrowed capital) the negative influence of financial factors rises, and the share of the
variation explained by them grows significantly. On the contrary, the influence of eco-
nomic factors and control variables weakens significantly, and the share of the variation
explained by them decreases.
We note that the share of enterprises whose share of borrowed capital is small (not
exceeding 50% of liabilities annually for 2012–2016) is only 23% of the entire sample
of enterprises (this share practically does not differ in ownership forms). At the same
time, the share of enterprises with a large share of borrowed capital (more than 50% of
liabilities annually for 2012–2016) is 50% of the total sample (differences in ownership
patterns are insignificant). Finally, a high share of borrowed capital is characteristic of
a significant number of manufacturing enterprises of all forms of ownership in Rus-
sia. Our results are generally consistent with existing research in this area (Myers and
Majluf 1984; Anwar and Sun 2013; Vy and Tra 2016; Le and Phan 2017). In particular,
we have identified the negative impact of the share of borrowed capital on the net return
on assets. It is consistent with the Pecking Order Theory, which claims that companies
use borrowed funds if they have problems with profitability and do not have enough of
their own financial resources. This research underlines the relevance of this problem
for countries with unstable economies, in particular, Russia. Analyzing the solid sample
of enterprises of the main branches of the manufacturing industry in Russia, we have
established their high dependence on borrowed capital. The average and median share
of borrowed capital in the liabilities side of the balance are above 60% (Table 1), and only
23% of the sampling companies had a share of borrowed capital below 50% for each year
of the study period. Thus, enterprises in countries with unstable economies are highly
dependent on borrowed capital. The situation is aggravated by the high level of loan
rates in such countries, which increases during crisis periods. There is a vicious circle
when enterprises, due to the high cost of loans, cannot increase their profitability and
reduce their dependence on borrowed funds. Adjusting the rates on bank loans in times
of crisis and actions aimed at systematically reducing these rates are necessary condi-
tions for improving the profitability of enterprises in developing countries with unstable
economies.

5 Conclusions

1. In the study of the full sample, it was found that enterprises of all forms of ownership
have a strong positive effect on the net return on assets of production efficiency and
economies of scale and a strong negative impact on the share of borrowed capital,
the share of fixed assets in assets and interest rates. The contribution to the increase
in R2 is comparable to the efficiency of production and domestic financial factors.
Spitsin et al. Economic Structures (2020) 9:9 Page 17 of 20

At the same time, the contribution of external financial factors is minimal, although
they are significant.
2. For enterprises in FO and JO, the main contribution to R2 growth is provided by
financial factors: internal and external for enterprises in FO, mostly internal, for
enterprises in JO. In enterprises in the RO, the contribution of factors is comparable
with the full sample.
3. In the context of industries, it was found that production efficiency provides a sig-
nificant increase in R2, comparable to the increase in financial factors in the sectors:
DM, DK, DJ. In contrast, in the DG, DL, DA industries, the main contribution to R2
growth comes from internal financial factors. External financial factors provide a sig-
nificant increase in R2 only in the automotive industry. A significant increase in the
negative impact of the share of borrowed capital in enterprises with foreign capital
(in FO and JO) occurs in all sectors except the food industry.
4. It was found that for enterprises with the share of borrowed funds less than 50% of
liabilities, there are no differences between the forms of ownership, and the main
contribution to the increase in R ­ 2 ensures production efficiency. On the contrary, for
group of enterprises with a share of borrowed capital of more than 50% of liabilities,
one of the main factors determining the profitability of assets are internal financial
factors. The impact of external financial factors on improving regression models is
negligible. At the same time, a more pronounced negative influence of financial fac-
tors is observed in enterprises in FO and JO.

At the same time, our contribution to the research of factors affecting profitability is
the consistent patterns that we have identified in relation to groups of factors (produc-
tion efficiency, internal financial factors, and external financial factors) in an unstable
economy. In contrast to other studies of countries with unstable economies (Godart
et al. 2012; De Backer and Sleuwaegen 2003; Fu and Wu 2013), this paper contains a
comprehensive study of the effect of the above-mentioned groups of factors in the con-
text of industries and forms of ownership of enterprises. The obtained results are useful
for effective industrial regulation in developing countries in unstable periods.
We can suggest the following implications for the industry decision-makers as well as
policy-makers.

1. In a situation of unstable external environments, based on the Trade-off Theory,

enterprises should rely more on their own resources and reduce the share of bor-
rowed capital, while the production scale, ceteris paribus, allows to diversify risks.
Also, during periods of instability, the presence of large fixed assets is an additional
risk factor for the enterprise. When implementing turnaround measures in stabili-
zation policy, the use of debt instruments should be avoided. Direct repurchase of
shares and direct financing of enterprises from state programs is more likely to lead
to success.
2. Managers should take into account that during the crisis, the increase in produc-
tion efficiency in the DM, DK, and DJ industries will be able to compensate for the
negative impact of financial factors, while the DG, DL, and DA industries are more
vulnerable to financial factors. Managers in the DM (automobile industry) and pol-
Spitsin et al. Economic Structures (2020) 9:9 Page 18 of 20

icy-makers should pay special attention to the influence of external factors during
the crisis. Under the influence of external factors, enterprises in FO and JO are under
substantial stress, which is also true for RO enterprises. This suggests the need for
import substitution policies. For industries other than DA (food industry), loans in
foreign currency are not recommended. In the DA industry, inferior goods prevail.
During the crisis, increased demand for their products can compensate for the insta-
bility of foreign currency loans. Policy-makers should pay particular attention to the
DG, DL, DA, DM industries because of their greater dependence on environmental
factors.
3. In general, companies should not allow the share of borrowed capital to exceed 50%
to ensure that the net return on assets does not depend on financial factors. Other-
wise, the share of borrowed capital and the share of foreign owners begin to affect
the level of profitability. Nevertheless, the share of the latter in Russian enterprises
sample is significant. While implementing the stabilization policy, the state should
take into account the need to reduce the share of borrowed capital for leading infra-
structure enterprises.
4. For policy-makers, our study suggests that the broad-brush policies aimed at facili-
tating industrial turnaround policies may be misguided. Based on the differential
impact of the studied factors on companies in domestic, joint, or foreign ownership,
a careful analysis of the industrial ownership structure is in order before a cohesive
set of policy recommendations should be developed. Inasmuch as some sectors of
the national economy may be dominated—or at least sufficiently populated—by the
firms in joint or foreign ownership, the advancement of policies that aim to assist
domestic companies specifically may be ill-advised. Regardless of the ultimate ben-
eficiary domicile, the impact of non-discriminating policies on the domestic work-
ers may be negative. As such, a careful policy planning should take the ownership
makeup of the industry firms into consideration.
5. Similarly, given the highly pronounced interindustry differences in the observed
effects, effective policies should be industry-specific. This puts a major burden on
the policy-makers in that the industry definition in most scholarly research is arbi-
trary, and depending on the aggregation level the policies deemed effective in some
analyses may be deemed counter-effective in others. This calls for a careful sensitivity
analysis of the proposed policy changes before any of them can be formalized by the
respective agencies.

Nevertheless, our study provides a set of general conclusions and recommenda-

tions. In countries with unstable economies, foreign owners should avoid using sig-
nificant amounts of borrowed capital, and especially loans in foreign currency. On
the other hand, with small amounts of borrowing, there were no differences between
enterprises with foreign capital and domestic enterprises. The authorities need to
make efforts to reduce interest rates on loans to legal entities, since virtually all tested
models revealed a highly significant negative impact of the share of borrowed capi-
tal and average interest rates on the profitability of industrial enterprises and interest
rates are high in countries with unstable economies.
Spitsin et al. Economic Structures (2020) 9:9 Page 19 of 20

Acknowledgements
The research is conducted with the financial support from the Russian Foundation for Basic Research (RFBR) in the
frames of scientific and research project of RFBR named “Dynamic modeling of Russian, foreign and joint industrial
enterprises development in a situation of economic sanctions”, Project No. 17-06-00584(a). The study of the impact of the
share of borrowed capital on profitability was carried out with the support of Tomsk Polytechnic University CE Program.

Authors’ contributions
VS is responsible for the hypothesis formulation and their testing, MR applied the methodology and carried out econo‑
metric analysis, DV and SA—the theoretical background and policy implications. All authors read and approved the final
manuscript.

Authors’ information
Vladislav Spitsin is an associate professor of National Research Tomsk Polytechnic University and Tomsk State University
of Control Systems and Radioelectronics. His professional interests are: economies of industries, innovative development
and technology transfer, foreign direct investment, industrial development tendencies, regional economy. He is a co-
author of three Certificates of computer programs for solving economic problems. The results of research are presented
in local and international publications.

Marina Ryzhkova is a professor in Economics (doctor habilitatus) in Institute of Economics and Management at the
National Research Tomsk State University (Russia) and a professor of the School of Engineering Entrepreneurship at
the National Research Tomsk Polytechnic University (Russia). Her research interests include revealing of regularities and
effects in industrial and public economics by behavioral and experimenting methods. The results are presented in local
and international publications.

Darko Vukovic is Professor at Finance and credit department, Faculty of Economics, People’s Friendship University of
Russia (RUDN University), in Moscow, Russia. Since 2008, Dr. Darko Vukovic works at Geographical Institute “Jovan Cvijic”
of the Serbian Academy of Sciences and Arts, at position Chief of Department of regional economics and economic
geography.

Sergey Anokhin is a professor in the School of Engineering Entrepreneurship at the National Research Tomsk Polytechnic
University in Russia. He also has an appointment at Herberger Business School at St. Cloud State University in the USA.
His research interests include entrepreneurship and innovation management in a variety of contexts. His research is
extensively published in leading academic journals and is used by policy-makers around the world.

Funding
This work is supported by RFBR as part of project “Dynamic modeling of Russian, foreign and joint industrial enterprises
development in a situation of economic sanctions”, Project No. 17-06-00584(a).

Availability of data and materials

The datasets generated and/or analyzed during the current study are available in the Federal State Statistics Service.
Available at http://www.gks.ru/.

Competing interests
The authors declare that they have no competing interests.

Author details
1
School of Engineering Entrepreneurship, National Research Tomsk Polytechnic University, Lenina Avenue, 30,
Tomsk 634050, Russia. 2 Department of Economics, Tomsk State University of Control, Systems and Radioelectronics,
Lenina Avenue, 40, Tomsk 634050, Russia. 3 Economics Department, Institute of Economics and Management, National
Research Tomsk State University (Russia), Lenin str. 36, Tomsk 634050, Russia. 4 Finance and Credit Department, Faculty
of Economics, People’s Friendship University of Russia (RUDN University), Miklukho‑Maklaya str. 6, Moscow 117198, Rus‑
sia. 5 Geographical Institute “Jovan Cvijić”, Serbian Academy of Sciences and Arts (SASA), Djure Jakšića 9, Belgrade 11000,
Serbia. 6 Department of Management and Entrepreneurship, Herberger Business School, St. Cloud State University, 720
4th Ave S., St. Cloud, MN 56301‑4498, USA.

Received: 12 July 2019 Revised: 17 December 2019 Accepted: 18 January 2020

References
Ahmad F, Draz MU, Yang SC (2016) Exchange rate, economic growth and foreign direct investment in emerging Asian econo‑
mies: Fresh evidence from long run estimation and variance decomposition approach. June 6. https​://paper​s.ssrn.com/
sol3/paper​s.cfm?abstr​act_id=28181​81
Ahn SK (2008) Exchange rate fluctuations and firm profitability in Korea. Kukje Kyungje Yongu 14(3):43–72
Aitken BJ, Harrison AE (1999) Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. Am Econ
Rev 89(3):605–618
Alti A (2006) How persistent is the impact of market timing on capital structure? J Financ 61(4):1681–1710
Anwar S, Sun S (2013) Presence of foreign firms and the capital structure of domestic firms: Evidence from China’s manufac‑
turing sector? June 10, 2013. https​://ssrn.com/abstr​act=23149​56
Anwar S, Sun S (2015) Can the presence of foreign investment affect the capital structure of domestic firms? J Corp Financ
30:32–43
Spitsin et al. Economic Structures (2020) 9:9 Page 20 of 20

Baker M, Wurgler J (2002) Market timing and capital structure. J Financ 57(1):1–32
Bamiatzi V, Bozos K, Cavusgil ST, Hult GT, Tomas M (2016) Revisiting the firm, industry, and country effects on profitability
under recessionary and expansion periods: a multilevel analysis. Strateg Manag J 37(7):1147–1448
Capon N, Farley JU, Hoenig S (1990) Determinants of financial performance: a meta-analysis. Manag Sci 36(10):1143–1159
Chaddad FR, Mondelli MP (2013) Sources of firm performance differences in the US food economy. J Agric Econ
64(2):382–404
Chatterjee S (2012) The impact of working capital on the profitability: evidence from the Indian firms. SSRN Electron J. August
6. https​://paper​s.ssrn.com/sol3/paper​s.cfm?abstr​act_id=21252​28
Chhibber PK, Majumdar SK (1999) Foreign ownership and profitability: property rights, control, and the performance of firms
in Indian industry. J Law Econ 42(1):209–238
De Backer K, Sleuwaegen L (2003) Does foreign direct investment crowd out domestic entrepreneurship? Rev Ind Organ
22(1):67–84
Fu D, Wu Y (2013) Foreign entry and profitability of domestic firms: evidence from China. Asian Econ Papers 12(2):34–60
Godart O, Görg H, Hanley A (2012) Surviving the crisis: foreign multinationals versus domestic firms. World Econ
35(10):1305–1321
Griffin N 2015. Determinants of firm profitability in Colombia’s manufacturing sector: exchange rate or structural? Interna‑
tional Monetary Fund. No. 15-97
Gschwandtner A, Hirsch S (2018) What drives firm profitability? A comparison of the US and EU food processing industry.
Manch School 86(3):390–416
Habrosh AA (2017) Impact of cash flow, profitability, liquidity, and capital structure ratio on predict financial performance.
Adv Sc Lett 23(8):7177–7179
Harrison AE, McMillan MS (2003) Does direct foreign investment affect domestic credit constraints? J Int Econ 61(1):73–100
Hovakimian A (2006) Are observed capital structures determined by equity market timing? J Finan Quant Anal 41(1):221–243
Interest rates on loans and deposits and the structure of loans and deposits by maturity. Bank of Russia. https​://www.cbr.ru/
stati​stics​/?PrtId​=int_rat
Jain S, Bhargava A, Bhargava A (2017) Impact of capital structure on profitability of Indian manufacturing firms. Asian J Res
Bank Financ 7(7):299–306
Jeanneret A (2015) International firm investment under exchange rate uncertainty. Rev Financ 20(5):2015–2048
Kisgen DJ (2006) Credit ratings and capital structure. J Financ 61(3):1035–1072
Kosová R (2010) Do foreign firms crowd out domestic firms? Evidence from the Czech Republic. Rev Econ Stat 92(4):861–881
Kraus A, Litzenberger RH (1973) A state-preference model of optimal financial leverage. J Financ 28:911–922
Le TPV, Phan TB (2017) Capital structure and firm performance: empirical evidence from a small transition country. Res Int Bus
Financ 42:710–726
Marquardt DW (1980) You should standardize the predictor variables in your regression models. J Am Stat Assoc
75(369):87–91
Myers SC, Majluf NS (1984) Corporate financing and investment decisions when firms have information that investors do not
have. J Financ Econ 13(2):187–221
Negasa T 2016. The effect of capital structure on firms’ profitability (Evidenced from Ethiopian). Preprints 2016, 2016070013.
https​://www.prepr​ints.org/manus​cript​/20160​7.0013/v1
Russia in Figures. Federal State Statistics Service. http://www.gks.ru/
Shapiro DM (1983) The comparative profitability of Canadian and foreign controlled firms. Manag Decis Econ 4(2):97–106
Shyam-Sunder L, Myers SC (1999) Testing static tradeoff against pecking order models of capital structure. J Financ Econ
51(2):219–244
SPARK: Information system. Interfax (Russia) (2018) https​://spark​-inter​fax.com/
Spitsin V, Mikhalchuk A, Spitsina L, Vukovic DB (2018) Foreign-owned companies in countries with an unstable economy: the
case of the automotive industry in Russia. J Int Stud 11(3):57–69. https​://doi.org/10.14254​/2071-8330.2018/11-3/5
Tang B (2015) Exchange rate exposure of Chinese firms at the industry and firm level. Rev Dev Econ 19(3):592–607
Tirole J (1988) The theory of industrial organization. MIT Press, Cambridge
Vaicondam Y, Ramakrishnan S (2017) Capital structure and profitability across Malaysian listed firms. Adv Sci Lett
23(9):9275–9278
Vithessonthi C, Tongurai J (2015a) The effect of firm size on the leverage–performance relationship during the financial crisis
of 2007–2009. J Multinatl Financ Manag 29:1–29
Vithessonthi C, Tongurai J (2015b) The effect of leverage on performance: domestically-oriented versus internationally-
oriented firms. Res Int Bus Financ 34:265–280
Vu MC, Phan TT (2016) Working capital management and firm profitability during a period of financial crisis: empirical study
in emerging country of Vietnam. Advances in Social Sciences Research Journal 3(3). http://www.sseuk​.org/index​.php/
ASSRJ​/artic​le/view/1816/1073
Vukovic D, Lapshina K, Maiti M (2019) European Monetary Union Bond Market Dynamics: Pre & Post Crisis. Res Int Bus Financ
50:369–380. https​://doi.org/10.1016/j.ribaf​.2019.04.001
Vukovic D, Ugolnikov V, Moinak M (2020) Analyst says a lot but should you listen: evidence from Russia. J Econ Stud. https​://
doi.org/10.1108/jes-10-2018-0352
Vy N, Tra N (2016) Does profitability affect debt ratio? Evidence from Vietnam listed firms. J Financ Econ Res 1(2):89–103
Welge MK, Al-Laham A (2008) Strategisches management. Gabler, Wiesbaden
Yapa Abeywardhana D (2017) Capital structure theory: an overview. Account Financ Res 6(1):133–138
Yurtoglu BB (2004) Persistence of firm-level profitability in Turkey. Appl Econ 36(6):615–625
Zakari M (2017) The impact of exchange rate fluctuations on foreign direct investment in Nigeria. J Financ Account
5(4):165–170

Publisher’s Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.