Production Capacity Utilization Variance and Its Role in the Operating Profitability of a Sample of Iraqi Industrial Corporations

Abstract

The purpose of this research is embodied in studying the effect of production capacity utilization on the operating profitability, for the company which does not make use of its available production capacity or that which suffer from a deficiency in its production capacity, its production costs rise due to a decrease in the production levels and consequently to a decline in the profits, which proves that there is an expected relationship between the amount of the production capacity utilization and the operating profitability. A non-random intentional sample has been selected including (16) Iraqi industrial corporations listed in Iraq Stock Exchange for period of (10) consecutive years (2006-2015). The research variables have been measured and analyzed quantitatively and statistically in description and explanation using the method of panel data analysis which combines between cross-sectional data including the corporations and the time-series data represented by years, which works on rising the efficiency of estimating the parameters of the studied model in comparison with the model capabilities in case of using the cross-sectional data or the time-series data alone separately, as well as employing the description instruments and statistical inference. The research problem is explained based on one main hypothesis states that the variance in the levels of production capacity utilization results in a statistically significant opposite variance in the operating profitability. The research reached to many conclusions, perhaps the most important of which is what confirms the validity of the research hypothesis, as it becomes clear that the higher the levels of the production capacity utilization, the more profitable they will be at the level of both measures used to measure the production capacity utilization.