Mark-ups and competition: a comparison of the profitability of listed South African industrial companies

This paper tests the well-established finding in the literature that SA firms are significantly more profitable and operate in a highly concentrated market, relative to that of their foreign counterparts. In particular we question the conclusions drawn by Aghion, Braun, and Fedderke (2008) who find that South African firms enjoy profitability margins more than double that in other countries for a sample from 1980 to 2004. We test this claim empirically by using survivorship bias corrected datasets of the top 25 South African industrial firms listed on the JSE (by market capitalisation) and those in the Dow Jones Industrial Average index. We compare (for this period) the mark-ups (as measured by Aghion et al. (2008)) as proxied for by the relative profitability (as measured by Return on Equity (ROE) and Return on Invested Capital (ROIC)). We also compare a set of commonly used ratios for SA firms relative to their US, UK and Brazilian counterparts for the period 1994{2013. Our results for both data sets do not confirm the claim that South African industrial companies have enjoyed sharply higher mark-ups as approximated by the relevant rates of profitability when compared with their international counterparts.