Churning and profitability in the U.S. corporate sector

This paper establishes that entry and exit stabilize 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.