IDEAS home Printed from https://ideas.repec.org/a/eee/streco/v33y2015icp10-24.html
   My bibliography  Save this article

Revisiting profit persistence and the stock market in Japan

Author

Listed:
  • Tsoulfidis, Lefteris
  • Alexiou, Constantinos
  • Parthenidis, Thanasis

Abstract

This paper tests the classical hypothesis of inter-industry profit rate's proclivity to gravitate towards the economy's average profit rate. In so doing, individual as well as panel unit root tests have been applied on a dataset consisting of 52 Japanese manufacturing industries spanning the period 1974–2008. The evidence generated is rather mixed in a sense that the inter-industry profit rates tendency to gravitate towards the economy's average rate of profit depends on the idiosyncratic characteristics of each industry. However, the rate of profit of regulating capitals, as this is reflected in the incremental rate of profit, displays gravitational behaviour around the economy-wide incremental rate of profit, the movement of which is found to be linked to the rate of return in the stock market. These results lend support to those who contend that the classical theory of competition is an area where further research is warranted.

Suggested Citation

  • Tsoulfidis, Lefteris & Alexiou, Constantinos & Parthenidis, Thanasis, 2015. "Revisiting profit persistence and the stock market in Japan," Structural Change and Economic Dynamics, Elsevier, vol. 33(C), pages 10-24.
  • Handle: RePEc:eee:streco:v:33:y:2015:i:c:p:10-24
    DOI: 10.1016/j.strueco.2015.02.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0954349X15000132
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.strueco.2015.02.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mill, John Stuart, 1848. "Principles of Political Economy (II): Distribution," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 2, number mill1848-2.
    2. Maruyama, Nobuhiro & Odagiri, Hiroyuki, 2002. "Does the 'persistence of profits' persist?: a study of company profits in Japan, 1964-97," International Journal of Industrial Organization, Elsevier, vol. 20(10), pages 1513-1533, December.
    3. Persefoni Tsaliki & Lefteris Tsoulfidis, 1998. "Alternative Theories of Competition: evidence from Greek manufacturing," International Review of Applied Economics, Taylor & Francis Journals, vol. 12(2), pages 187-204.
    4. Tsoulfidis, Lefteris & Tsaliki, Persefoni, 2011. "Classical competition and regulating capital: theory and empirical evidence," MPRA Paper 51334, University Library of Munich, Germany, revised 2013.
    5. Rodrigo M Zeidan & Marcelo Resende, 2010. "Accounting and Economic Rates of Return: A Dynamic Econometric Investigation," Brazilian Review of Finance, Brazilian Society of Finance, vol. 8(1), pages 69-84.
    6. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    7. Canarella, Giorgio & Miller, Stephen M. & Nourayi, Mahmoud M., 2013. "Firm profitability: Mean-reverting or random-walk behavior?," Journal of Economics and Business, Elsevier, vol. 66(C), pages 76-97.
    8. Mill, John Stuart, 1848. "Principles of Political Economy (III): Exchange," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 3, number mill1848-3.
    9. Jushan Bai & Serena Ng, 2004. "A PANIC Attack on Unit Roots and Cointegration," Econometrica, Econometric Society, vol. 72(4), pages 1127-1177, July.
    10. Anwar M. Shaikh, 1995. "The Stock Market and the Corporate Sector: Profit-Based Approach," Economics Working Paper Archive wp_146, Levy Economics Institute.
    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. Cameron,A. Colin & Trivedi,Pravin K., 2005. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9780521848053, October.
    13. Shiller, Robert J, 1990. "Speculative Prices and Popular Models," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 55-65, Spring.
    14. Mueller,Dennis C., 2009. "Profits in the Long Run," Cambridge Books, Cambridge University Press, number 9780521101592, October.
    15. Mill, John Stuart, 1848. "Principles of Political Economy (I): Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number mill1848-1.
    16. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
    17. Quah, Danny, 1994. "Exploiting cross-section variation for unit root inference in dynamic data," Economics Letters, Elsevier, vol. 44(1-2), pages 9-19.
    18. 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.
    19. Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, vol. 91(2), pages 201-226, August.
    20. Smith, Adam, 1776. "An Inquiry into the Nature and Causes of the Wealth of Nations," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1776.
    21. Long, William F & Ravenscraft, David J, 1984. "The Misuse of Accounting Rates of Return: Comment," American Economic Review, American Economic Association, vol. 74(3), pages 494-500, June.
    22. Andrea Vaona, 2012. "Further econometric evidence on the gravitation and convergence of industrial rates of return on regulating capital," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(1), pages 113-136.
    23. Fisher, Franklin M & McGowan, John J, 1983. "On the Misuse of Accounting Rates of Return to Infer Monopoly Profits," American Economic Review, American Economic Association, vol. 73(1), pages 82-97, March.
    24. Mill, John Stuart, 1848. "Principles of Political Economy (V): On the Influence of Government," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 5, number mill1848-5.
    25. Glick, Mark & Ehrbar, Hans, 1990. "Long-run Equilibrium in the Empirical Study of Monopoly and Competition," Economic Inquiry, Western Economic Association International, vol. 28(1), pages 151-162, January.
    26. Lefteris Tsoulfidis & Persefoni Tsaliki, 2005. "Marxian Theory of Competition and the Concept of Regulating Capital: Evidence from Greek Manufacturing," Review of Radical Political Economics, Union for Radical Political Economics, vol. 37(1), pages 5-22, March.
    27. Glick, Mark & Ehrbar, Hans, 1988. "Profit rate equalization in the U.S. and Europe: An econometric investigation," European Journal of Political Economy, Elsevier, vol. 4(1), pages 179-201.
    28. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    29. Andrea Vaona, 2011. "An empirical investigation into the gravitation and convergence of industry return rates in OECD countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(4), pages 465-502.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stefan Hirsch, 2018. "Successful In The Long Run: A Meta†Regression Analysis Of Persistent Firm Profits," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 23-49, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stefania Tescari & Andrea Vaona, 2014. "Regulating Rates of Return Do Gravitate in US Manufacturing!," Metroeconomica, Wiley Blackwell, vol. 65(3), pages 377-396, July.
    2. Lefteris Tsoulfidis & Persefoni Tsaliki, 2011. "Classical Competition and Regulating Capital: Theory and Empirical Evidence," Discussion Paper Series 2011_02, Department of Economics, University of Macedonia, revised Feb 2011.
    3. Canarella, Giorgio & Miller, Stephen M. & Nourayi, Mahmoud M., 2013. "Firm profitability: Mean-reverting or random-walk behavior?," Journal of Economics and Business, Elsevier, vol. 66(C), pages 76-97.
    4. Trofimov, Ivan D., 2018. "Industry rates of return in Korea and alternative theories of competition: equalising convergence versus tendential equalisation," MPRA Paper 88390, University Library of Munich, Germany.
    5. Lefteris Tsoulfidis, 2011. "Classical vs. Neoclassical Conceptions of Competition," Discussion Paper Series 2011_11, Department of Economics, University of Macedonia, revised Nov 2011.
    6. Andrea Vaona, 2012. "Further econometric evidence on the gravitation and convergence of industrial rates of return on regulating capital," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(1), pages 113-136.
    7. Andrea Vaona, 2010. "On the gravitation and convergence of industry profit rates in Denmark, Finland, Italy and the US," Working Papers 02/2010, University of Verona, Department of Economics.
    8. Andrea Vaona, 2010. "On the gravitation and convergence of industry incremental rates of return in OECD countries," Working Papers 03/2010, University of Verona, Department of Economics.
    9. Shahnazi, Rouhollah & Dehghan Shabani, Zahra, 2021. "The effects of renewable energy, spatial spillover of CO2 emissions and economic freedom on CO2 emissions in the EU," Renewable Energy, Elsevier, vol. 169(C), pages 293-307.
    10. Joakim Westerlund & Jörg Breitung, 2013. "Lessons from a Decade of IPS and LLC," Econometric Reviews, Taylor & Francis Journals, vol. 32(5-6), pages 547-591, August.
    11. Belaïd, Fateh & Zrelli, Maha Harbaoui, 2019. "Renewable and non-renewable electricity consumption, environmental degradation and economic development: Evidence from Mediterranean countries," Energy Policy, Elsevier, vol. 133(C).
    12. Rickard Sandberg, 2016. "Testing for unit roots in nonlinear heterogeneous panels with smoothly changing trends: an application to Scandinavian unemployment rates," Empirical Economics, Springer, vol. 51(3), pages 1053-1083, November.
    13. Valérie Mignon & Christophe Hurlin, 2005. "Une synthèse des tests de racine unitaire sur données de panel," Économie et Prévision, Programme National Persée, vol. 169(3), pages 253-294.
    14. Jaroslava Hlouskova & Martin Wagner, 2006. "The Performance of Panel Unit Root and Stationarity Tests: Results from a Large Scale Simulation Study," Econometric Reviews, Taylor & Francis Journals, vol. 25(1), pages 85-116.
    15. Catherine Figuière & Laëtitia Guilhot & Cyriac Guillaumin, 2013. "La question du régime de change en Asie de l'Est : Vers un bloc monétaire régional ?," Revue d'économie politique, Dalloz, vol. 123(2), pages 265-298.
    16. Jerry Kirkpatrick, 2004. "Reisman's Net Consumption, Net Investment Theory of Aggregate Profit," American Journal of Economics and Sociology, Wiley Blackwell, vol. 63(3), pages 627-646, July.
    17. Chang, Yoosoon, 2012. "Taking a new contour: A novel approach to panel unit root tests," Journal of Econometrics, Elsevier, vol. 169(1), pages 15-28.
    18. Salisu, Afees A. & Ndako, Umar B., 2018. "Modelling stock price–exchange rate nexus in OECD countries: A new perspective," Economic Modelling, Elsevier, vol. 74(C), pages 105-123.
    19. Mahmoud M. Nourayi & Julie W. Suh, 2015. "An Empirical Analysis of the Competitiveness in the U.S. Airline Industry," Review of Economics & Finance, Better Advances Press, Canada, vol. 5, pages 83-99, August.
    20. Kaddour Hadri & Eiji Kurozumi, 2008. "A Simple Panel Stationarity Test in the Presence of Cross-Sectional Dependence," Global COE Hi-Stat Discussion Paper Series gd08-016, Institute of Economic Research, Hitotsubashi University.

    More about this item

    Keywords

    Competition; Incremental rate of profit; Unit roots; Panel unit root tests; Nikkei price index;
    All these keywords.

    JEL classification:

    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L70 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - General
    • L80 - Industrial Organization - - Industry Studies: Services - - - General
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General
    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:streco:v:33:y:2015:i:c:p:10-24. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/inca/525148 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/525148 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.