How financial resources influence firms’ performance : a comparative study of the UK manufacturing and real estate industries

Abstract

This study focuses on the impact of financial resources on the performance of firms in the manufacturing and real estate sectors in the United Kingdom from 2015-2024. The paper uses the Resource-Based View (RBV) in its attempt to conceptualize the financial resources, including liquidity, leverage, free cash flow to assets, firm size, equity turnover, and growth, as the strategic inputs that could lead to competitive advantage. The fixed-effects models with firm and year controls are used to analyze a balanced panel dataset of 20 firms. Diagnostic testing determines that heteroskedasticity exists in both industries and cross-sectional dependence exists in the real estate industry; hence, Driscoll-Kraay standard errors are used to estimate the real estate model, whereas cluster-robust standard errors are applied to estimate the manufacturing model.

Results demonstrate that the financial variables are weakly explained when strong corrections are implemented. Growth has a marginal positive influence on profitability in the real estate industry, as compared to the equity ratio, where the ratio has a marginal negative influence. The free cash flow has a less positive effect in the manufacturing industry; however, the other financial indicators do not have a strong impact on performance. The overall impact of financial variables on profitability in both sectors is not significant, but the year effect is and remains significant; thus, macroeconomic conditions and industry-wide shocks appear to be the main predictors of firm performance.

Overall, the findings indicate that unobservable firm-specific features and external time effects have a more significant influence on profitability than the financial resource variables that are evaluated in this study.