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Determinants of Profitability: An Empirical Investigation Using Australian Tax Entities

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Author Info
Simon Feeny (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

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Abstract

This paper uses a sample of 180,738 tax entities from the full Australian Tax Office (ATO) tax return data to investigate the determinants of profitability. The sample of Australian tax entities are averaged over the period 1994/95 to 1996/97. Analysis is carried out at a 3 digit ANZSIC level of classification. Using simple regression techniques the analysis suggests that size of entity is positively related to profitability but industry characteristics have limited importance in explaining entity profitability. Concentration, defined at a 4 digit level, is positively and significantly related to entity profitability in 27% of Australian 3 digit industries, while a significant negative association is found in 8% of the industries. There is some evidence that barriers to entry have the positive relationship with entity profitability as dictated by theory when proxied by the industry capital intensity but not when proxied by the minimum efficient scale or industry trademark intensity. There is strong evidence that the market share of an entity has a U-shaped relationship with profitability.

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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2000n01.

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Length: 25 pages
Date of creation: May 2000
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Handle: RePEc:iae:iaewps:wp2000n01

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  1. Dixon, Bruce L & Garcia, Philip & Anderson, Margot, 1987. "Usefulness of Pretests for Estimating Underlying Technologies Using Dual Profit Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 623-33, October. [Downloadable!] (restricted)
  2. Demsetz, Harold, 1982. "Barriers to Entry," American Economic Review, American Economic Association, vol. 72(1), pages 47-57, March. [Downloadable!] (restricted)
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  3. Shepherd, William G, 1972. "The Elements of Market Structure," The Review of Economics and Statistics, MIT Press, vol. 54(1), pages 25-37, February. [Downloadable!] (restricted)
  4. McDonald, James Ted, 1999. "The Determinants of Firm Profitability in Australian Manufacturing," The Economic Record, The Economic Society of Australia, vol. 75(229), pages 115-26, June.
  5. Caves, Richard E & Khalilzadeh-Shirazi, J & Porter, M E, 1975. "Scale Economies in Statistical Analyses of Market Power," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 133-40, May. [Downloadable!] (restricted)
  6. Ravenscraft, David J, 1983. "Structure-Profit Relationships at the Line of Business and Industry Level," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 22-31, February. [Downloadable!] (restricted)
  7. Oulton, Nicholas, 1998. "Competition and the Dispersion of Labour Productivity amongst UK Companies," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 23-38, January.
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  8. Ralph C. Kimball, 1998. "Economic profit and performance measurement in banking," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 35-53. [Downloadable!]
  9. Schmalensee, Richard, 1989. "Inter-industry studies of structure and performance," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 16, pages 951-1009 Elsevier. [Downloadable!] (restricted)
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  1. Simon Feeny & Mark N. Harris & Joanne Loundes, 2000. "A Dynamic Panel Analysis of the Profitability of Australian Tax Entities," Melbourne Institute Working Paper Series wp2000n22, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
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