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Explaining the Persistence of Profits: A Time-Varying Approach

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  • Adelina Gschwandtner
  • Jesus Crespo Cuaresma

Abstract

The present paper analyzes the determinants of profit persistence using a newly developed methodology that allows the persistence parameter to vary with time. It therefore addresses a significant limitation of previous persistence models, which have assumed unrealistically that persistence is fixed over relatively long periods of 20 years and upwards. The concentration of the industry is found to have a significant positive impact on profit persistence. However, at firm level, market share and risk have a surprisingly negative impact

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File URL: http://hdl.handle.net/10.1080/13571516.2012.750051
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 20 (2013)
Issue (Month): 1 (February)
Pages: 39-55

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Handle: RePEc:taf:ijecbs:v:20:y:2013:i:1:p:39-55

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  1. Lang, Larry H P & Stulz, Rene M, 1994. "Tobin's q, Corporate Diversification, and Firm Performance," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1248-80, December.
  2. Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  3. Galai, Dan & Masulis, Ronald W., 1976. "The option pricing model and the risk factor of stock," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 53-81.
  4. Jesús Crespo Cuaresma & Adelina Gschwandtner, 2005. "Tracing the dynamics of competition: Evidence from company profits," Vienna Economics Papers 0504, University of Vienna, Department of Economics.
  5. Ben-Zion, Uri & Shalit, Sol S, 1975. "Size, Leverage, and Dividend Record as Determinants of Equity Risk," Journal of Finance, American Finance Association, vol. 30(4), pages 1015-26, September.
  6. B. Burcin Yurtoglu, 2004. "Persistence of firm-level profitability in Turkey," Applied Economics, Taylor & Francis Journals, vol. 36(6), pages 615-625.
  7. Jesús Crespo-Cuaresma & Adelina Gschwandtner, 2003. "The competitive environment hypothesis revisited: Nonlinearity, nonstationrity and profit persistence," Vienna Economics Papers 0316, University of Vienna, Department of Economics.
  8. Esposito, Louis & Esposito, Frances Ferguson, 1971. "Foreign Competition and Domestic Industry Profitability," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 343-53, November.
  9. Adelina Gschwandtner, 2004. "Profit Persistence in the "Very" Long Run: Evidence from Survivors and Exiters," Vienna Economics Papers 0401, University of Vienna, Department of Economics.
  10. Shepherd, William G, 1972. "The Elements of Market Structure," The Review of Economics and Statistics, MIT Press, vol. 54(1), pages 25-37, February.
  11. Fisher, I N & Hall, George R, 1969. "Risk and Corporate Rates of Return," The Quarterly Journal of Economics, MIT Press, vol. 83(1), pages 79-92, February.
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