21st century recessions in the European Union : a correlation between recession and profitability

Abstract

This study was conducted to find out of if there is a correlation between the 21st century recessions and profitability of European enterprises operating in mining and quarrying, manufacturing, construction of buildings, wholesale and retail trade industry. Recessions are nowadays norm rather than exception due to the economic volatility that is result of globalisation and interconnected markets. Therefore, it is important to understand how recessions impact the profitability of enterprises. The first part of this study defined Europe as an economic environment, inflation and purchasing power parity, economic cycle and 21st century recessions. Frederick Hawley’s Theory of Risk and Uncertainty and John Keynes’ Model of Economics are used to explain the natural changes in the economic environment and why it causes changes in profitability. The second part of this study examined the relationship between recessions and profit before taxation between 2007-2019. The hypothesis for this thesis was that the recessions have a relation to the profitability of enterprises. The variable used to portray recessions was a gross domestic product between 2007-2019. The profit before taxation was collected from 10 randomly selected enterprises operating in mining and quarrying, manufacturing, construction of buildings, wholesale and retail trade industry between 2007-2019. The statistical method used for this study was linear regression. The two measures used to prove a correlation were P and R2. The profit before taxation of enterprises between 2007-2019 was selected as dependent variable, and the used independent variable was a gross domestic product of the European Union between 2007-2019. In the third part of this study, it was discussed that only enterprises operating mining and quarrying had positive correlation with a gross domestic product of the European Union between 2007-2019. Therefore, the hypothesis of this study was proved to be wrong with all industries expect mining and quarrying. This suggests there is no relation with recessions and profitability of the enterprises used in this study