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

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Author Info
Bentzen, Jan () (Department of Economics, Aarhus School of Business)
Madsen, Erik Strøjer () (Department of Economics, Aarhus School of Business)
Smith, Valdemar () (Department of Economics, Aarhus School of Business)
Dilling-Hansen, Mogens (Department of Economics, University of Aarhus)

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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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Publisher Info
Paper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 04-15.

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Length: 25 pages
Date of creation: 10 Dec 2004
Date of revision:
Handle: RePEc:hhs:aareco:2004_015

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Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
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Related research
Keywords: Corporate performance; Persistence in profits; Panel unit root tests;

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Find related papers by 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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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Breuer, Janice Boucher & McNown, Robert & Wallace, Myles, 2002. " Series-Specific Unit Root Tests with Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(5), pages 527-46, December. [Downloadable!] (restricted)
  2. Schwalbach, Joachim & Gra[beta]hoff, Ulrike & Mahmood, Talat, 1989. "The dynamics of corporate profits," European Economic Review, Elsevier, vol. 33(8), pages 1625-1639, October. [Downloadable!] (restricted)
  3. Breuer, Janice Boucher & McNown, Robert & Wallace, Myles S, 2001. "Misleading Inferences from Panel Unit-Root Tests with an Illustration from Purchasing Power Parity," Review of International Economics, Blackwell Publishing, vol. 9(3), pages 482-93, August. [Downloadable!] (restricted)
  4. Strauss, Jack & Yigit, Taner, 2003. "Shortfalls of panel unit root testing," Economics Letters, Elsevier, vol. 81(3), pages 309-313, December. [Downloadable!] (restricted)
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  5. Mueller, Dennis C, 1977. "The Persistence of Profits above the Norm," Economica, London School of Economics and Political Science, vol. 44(176), pages 369-80, November. [Downloadable!] (restricted)
  6. Schohl, Frank, 1990. "Persistence of profits in the long run: A critical extension of some recent findings," International Journal of Industrial Organization, Elsevier, vol. 8(3), pages 385-404, September. [Downloadable!] (restricted)
  7. Taylor, Mark P. & Sarno, Lucio, 1998. "The behavior of real exchange rates during the post-Bretton Woods period," Journal of International Economics, Elsevier, vol. 46(2), pages 281-312, December. [Downloadable!] (restricted)
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  8. Cubbin, John & Geroski, Paul A, 1987. "The Convergence of Profits in the Long Run: Inter-firm and Inter-industry Comparisons," Journal of Industrial Economics, Blackwell Publishing, vol. 35(4), pages 427-42, June. [Downloadable!] (restricted)
  9. Sarno, Lucio & Taylor, Mark P., 1998. "Real exchange rates under the recent float: unequivocal evidence of mean reversion," Economics Letters, Elsevier, vol. 60(2), pages 131-137, August. [Downloadable!] (restricted)
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  10. Waring, Geoffrey F, 1996. "Industry Differences in the Persistence of Firm-Specific Returns," American Economic Review, American Economic Association, vol. 86(5), pages 1253-65, December. [Downloadable!] (restricted)
  11. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July. [Downloadable!] (restricted)
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  12. Geroski, Paul A & Jacquemin, Alexis, 1988. "The Persistence of Profits: A European Comparison," Economic Journal, Royal Economic Society, vol. 98(391), pages 375-89, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. 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. [Downloadable!]
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