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Explaining the persistence of profits: A time-varying approach

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Author Info
Adelina Gschwandtner ()
Jesus Crespo Cuaresma ()

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Abstract

The present paper analyzes the determinants of profit persistence using a newly developed methodology that allows for 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 period of 20 years upwards. The concentration and the size of the industry are found to have a significant positive impact on profit persistence. However, at firm level, market share and risk have surprisingly a negative impact on profit persistence.

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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0806.

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Date of creation: Jun 2008
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Handle: RePEc:vie:viennp:0806

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Find related papers by JEL classification:
L00 - Industrial Organization - - General - - - General
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

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  1. Jesus Crespo Cuaresma & Adelina Gschwandtner, 2006. "The competitive environment hypothesis revisited: non-linearity, nonstationarity and profit persistence," Applied Economics, Taylor and Francis Journals, vol. 38(4), pages 465-472, March. [Downloadable!] (restricted)
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  2. 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. [Downloadable!]
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  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. [Downloadable!] (restricted)
  4. George L. Mullin & Joseph C. Mullin & Wallace P. Mullin, 1995. "The Competitive Effects of Mergers: Stock Market Evidence from the U.S. Steel Dissolution Suit," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 314-330, Summer. [Downloadable!] (restricted)
  5. 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)
  6. Kambhampati, U S, 1995. "The Persistence of Profit Differentials in Indian Industry," Applied Economics, Taylor and Francis Journals, vol. 27(4), pages 353-61, April.
  7. 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. [Downloadable!] (restricted)
  8. Coate, Malcolm B, 1989. "The Dynamics of Price-Cost Margins in Concentrated Industries," Applied Economics, Taylor and Francis Journals, vol. 21(2), pages 261-72, February.
  9. B. Burcin Yurtoglu, 2004. "Persistence of firm-level profitability in Turkey," Applied Economics, Taylor and Francis Journals, vol. 36(6), pages 615-625, April. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
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  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. [Downloadable!] (restricted)
  12. 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. [Downloadable!] (restricted)
  13. 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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  14. 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. [Downloadable!]
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