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Persistence in Corporate Performance? Empirical Evidence from Panel Unit Root Tests

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  • Jan Bentzen
  • Erik Madsen
  • Valdemar Smith
  • Mogens Dilling-Hansen

Abstract

Persistence in corporate performance is analyzed in the framework of empirical tests of unit root behavior concerning firm profits. Data for firm-specific rates of return is applied in a set of panel unit root tests to address the question of persistence in profits both at firm level and for the aggregate level of industry-specific profits. The firm data all reject a null hypothesis of random walk behavior of profits but when smoothing profit rates at a two-digit NACE-code level for industries, the empirical evidence is more mixed as most industries show up with a unit root in aggregate rates of return, i.e. indicating persistence in corporate performance.
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Suggested Citation

  • Jan Bentzen & Erik Madsen & Valdemar Smith & Mogens Dilling-Hansen, 2005. "Persistence in Corporate Performance? Empirical Evidence from Panel Unit Root Tests," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 32(2), pages 217-230, June.
    • Handle: RePEc:kap:empiri:v:32:y:2005:i:2:p:217-230
    DOI: 10.1007/s10663-004-6728-7
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    Cited by:

    1. Canarella, Giorgio & Miller, Stephen M. & Nourayi, Mahmoud M., 2013. "Firm profitability: Mean-reverting or random-walk behavior?," Journal of Economics and Business, Elsevier, vol. 66(C), pages 76-97.
    2. Trofimov, Ivan D., 2018. "Industry rates of return in Korea and alternative theories of competition: equalising convergence versus tendential equalisation," MPRA Paper 88390, University Library of Munich, Germany.
    3. Tay-Cheng Ma, 2010. "Do prices respond asymmetrically to cost changes?," Applied Economics, Taylor & Francis Journals, vol. 42(9), pages 1183-1196.
    4. Sameeksha Desai & Johan E. Eklund & Emma Lappi, 2020. "Entry Regulation and Persistence of Profits in Incumbent Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(3), pages 537-558, November.
    5. Alper Aslan & Kemal Koksal & Oguz Ocal, 2011. "Competitive Environment Hypothesis in Turkish Banking System," International Journal of Economics and Financial Issues, Econjournals, vol. 1(2), pages 74-77, June.
    6. Zeren, Feyyaz & Öztürk, Erkan, 2015. "Testing For Profit Persistence Of Listed Manufacturing Companies In Istanbul Stock Exchange," Ekonomika, Journal for Economic Theory and Practice and Social Issues, Society of Economists Ekonomika, Nis, Serbia, vol. 61(2), pages 1-10, June.
    7. Wiberg, Daniel, 2009. "Persistence of Profits and the Systematic Search for Knowledge - R&D and profits above the norm," Working Paper Series in Economics and Institutions of Innovation 161, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

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    More about this item

    Keywords

    Corporate performance; persistence in profits; panel unit root tests; C3; L2;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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