OPERATING RISK AND FIRM’S PROFITABILITY: EVIDENCE FROM NON-LISTED MANUFACTURING FIRMS FROM V4 COUNTRIES
OPERATING RISK AND FIRM’S PROFITABILITY: EVIDENCE FROM NON-LISTED MANUFACTURING FIRMS FROM V4 COUNTRIES

Summary/Abstract: Purpose. This study contributes to the ongoing debate on determinants of firms’ resili-ence strategies while facing a crisis, by referring to the operating risk. The purpose of our work is to examine the effects of operating risk on profitability of non-listed firmsin manufacturing sector. Therefore, our study responds to the literature gap within investi-gating this problem at sector level, and among smaller firms.Methodology. Our evidence is based on accounting-based data, covering four countries (Poland, Czechia,Slovakia and Hungary) and large number of non-listed firms. We apply WLS (Weighted Last Squared) regression to test two models of the impacts of operating risk on firm’s profitability. Findings.Our results indicate that firms exposed to higher operatingrisk, tend to be less profitable. While considering cross-effects of operating and financial risk in our model, we found strong and sound evidence that the interplay between operating and financial risk exposure exerts a negative impact on firm’s profitability. These results have im-portant implications, by demonstrating that during the period of crisis firms need equity financing to sustain resilience.

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