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Churning and profitability in the U.S. Corporate Sector

Author

Listed:
  • Leila Davis

    (Department of Economics, University of Massachusetts Boston)

  • Joao de Souza

    (Department of Economics, University of Massachusetts Boston)

Abstract

This paper establishes that entry and exit regulate the top half of the profitability distribution in the post-1970 U.S. economy. We, first, document stability in the distribution of total profits earned on tangible, intangible, and financial capital. Whereas a narrower measure of returns on tangible capital, instead, suggests rising dispersion, it fails to capture post-1970 growth in intangible and financial assets. Second, we use quantile decompositions to show that churning – specifically, exit for cause – regulates median and top-end profitability. Thus, the process by which competition drives out unprofitable firms acts to stabilize profit rates in the U.S. economy.

Suggested Citation

  • Leila Davis & Joao de Souza, 2021. "Churning and profitability in the U.S. Corporate Sector," UMASS Amherst Economics Working Papers 2021-06, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2021-06
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    File URL: https://scholarworks.umass.edu/econ_workingpaper/303/
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    Cited by:

    1. Leila Davis & Joao de Souza, 2022. "Stylized facts on the evolution of profit rates in the US: Evidence from firm-level data," Working Papers 2022-01, University of Massachusetts Boston, Economics Department.

    More about this item

    Keywords

    Profit rates; competition; entry and exit dynamics;
    All these keywords.

    JEL classification:

    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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