Different types of expenses and their effects on profitability enhancement: empirical evidence from food and allied industries of Bangladesh

Abstract

Due to their fragile financial structure and highly competitive market conditions, the food and allied industries require effective cost-control strategies. In this context, this study aims to investigate the operational costs of food and allied companies and examine how these costs affect profitability across different firm sizes and business sectors. Specifically, the study analyzes the impact of various types of expenses on profit after tax. An unbalanced panel dataset comprising 14 food and allied companies covering the period from 2009 to 2023 was used for the analysis. The study employed the Two-Stage Least Squares (2SLS) and Generalized Method of Moments (GMM) models. The findings indicate that the cost of goods sold, operating expenses, administrative expenses, and finance expenses have significant positive relationships with profit after tax. Sophisticated cost-management capabilities, including balancing productivity and revenue generation while minimizing adverse effects on product quality, are essential for improving the operational performance of food and allied industries. The results also suggest that firm size influences profitability through economies of scale, which help reduce costs. However, to achieve sustainable earnings growth, owners and managers of food and allied companies—particularly large firms—should focus on improving product quality rather than relying solely on the benefits of advertising.