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Corporate profitability and the dynamics of competition in emerging markets: a time series analysis

  • Jack Glen
  • Kevin Lee
  • Ajit Singh

The paper presents time-series analyses of corporate profitability in seven leading developing countries (DCs) using the common methodology of the persistence of profitability (PP) studies and systematically compares the results with those for advanced countries (ACs). Surprisingly, both short and long-term persistence of profitability for DCs are found to be lower than those for ACs. The paper concentrates on economic explanations for these findings. It also reports the results on the persistence of the two components of profitability - output-capital ratios and profit margins. These too raise important general issues of economic interpretation for PP studies which are outlined. Copyright 2003 Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 113 (2003)
Issue (Month): 491 (November)
Pages: F465-F484

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Handle: RePEc:ecj:econjl:v:113:y:2003:i:491:p:f465-f484
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  1. Whittington, G & Saporta, V & Singh, A, 1997. "The Effects of Hyper-Inflation on Accounting Ratios. Financing Corporate Growth in Industrial Economies," Papers 3, World Bank - International Finance Corporation.
  2. Singh, A., 1995. "Corporate Financial Patterns in Industrializing Economies. A Coparative International Study," Papers 2, World Bank - International Finance Corporation.
  3. Singh, Ajit & Weisse, Bruce, 1998. "The Asian model: a crisis foretold," MPRA Paper 54002, University Library of Munich, Germany.
  4. Geroski, Paul A & Jacquemin, Alexis, 1988. "The Persistence of Profits: A European Comparison," Economic Journal, Royal Economic Society, vol. 98(391), pages 375-89, June.
  5. Singh, A. & Hamid, J., 1992. "Corporate Financial Structure in Developing Countries," Papers 1, World Bank - International Finance Corporation.
  6. Amsden, Alice & Singh, Ajit, 1993. "The optimal degree of competition and dynamic efficiency in Japan and Korea," MPRA Paper 54982, University Library of Munich, Germany.
  7. Ajit Singh, 2002. "Competition and competition policy in emerging markets: international and developmental dimensions," ESRC Centre for Business Research - Working Papers wp246, ESRC Centre for Business Research.
  8. Cubbin, John & Geroski, Paul A, 1987. "The Convergence of Profits in the Long Run: Inter-firm and Inter-industry Comparisons," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 427-42, June.
  9. Asplund, Björn Marcus & Nocke, Volker, 2000. "Imperfect Competition, Market Size and Firm Turnover," CEPR Discussion Papers 2625, C.E.P.R. Discussion Papers.
  10. Glen, Jack & Lee, Kevin & Singh, Ajit, 2001. "Persistence of profitability and competition in emerging markets," Economics Letters, Elsevier, vol. 72(2), pages 247-253, August.
  11. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  12. Geroski, Paul A & Machin, Stephen & Walters, Christopher F, 1997. "Corporate Growth and Profitability," Journal of Industrial Economics, Wiley Blackwell, vol. 45(2), pages 171-89, June.
  13. Reder, Melvin W, 1982. "Chicago Economics: Permanence and Change," Journal of Economic Literature, American Economic Association, vol. 20(1), pages 1-38, March.
  14. Goddard, J. A. & Wilson, J. O. S., 1999. "The persistence of profit: a new empirical interpretation," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 663-687, July.
  15. B. Burcin Yurtoglu, 2004. "Persistence of firm-level profitability in Turkey," Applied Economics, Taylor & Francis Journals, vol. 36(6), pages 615-625.
  16. Patterson, K. D., 2000. "Bias reduction in autoregressive models," Economics Letters, Elsevier, vol. 68(2), pages 135-141, August.
  17. Waring, Geoffrey F, 1996. "Industry Differences in the Persistence of Firm-Specific Returns," American Economic Review, American Economic Association, vol. 86(5), pages 1253-65, December.
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