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A dynamic panel analysis of the profitability of Australian tax entities

  • Simon Feeny

    ()

  • Mark Harris

    ()

  • Mark Rogers

    ()

This paper investigates the determinants of profitability of Australian tax entities over the period 1993/94 to 1996/97 for each of 91 three-digit ANZSIC industries. The theoretical model is based on that of Cowling and Waterson (1976). However, it is augmented by the inclusion of lagged profitability to allow for habit persistence in entity profitability. The so-called operational Wansbeek-Bekker estimator is used to control for endogeneity of this lagged dependent variable, whilst simultaneously controlling for observed and unobserved entity heterogeneity. Aggregate results suggest that profitability in the previous year, entity capital intensity, and barriers to entry have the expected positive association with current profitability measured by the price-cost margin. Entity market share-and to a lesser extent concentration-are found to have a U shaped relationship with profitability.

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File URL: http://hdl.handle.net/10.1007/s00181-004-0230-8
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Article provided by Springer in its journal Empirical Economics.

Volume (Year): 30 (2005)
Issue (Month): 1 (01)
Pages: 209-233

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Handle: RePEc:spr:empeco:v:30:y:2005:i:1:p:209-233
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  1. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
  2. Harold Demsetz, 1981. "Barriers to Entry," UCLA Economics Working Papers 192, UCLA Department of Economics.
  3. McDonald, James Ted, 1999. "The Determinants of Firm Profitability in Australian Manufacturing," The Economic Record, The Economic Society of Australia, vol. 75(229), pages 115-26, June.
  4. Machin, Stephen & Van Reenen, John, 1993. "Profit Margins and the Business Cycle: Evidence from UK Manufacturing Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 41(1), pages 29-50, March.
  5. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  6. Marc Nerlove, 1968. "Further Evidence on the Estimation of Dynamic Economic Relations from a Time Series of Cross-Sections," Cowles Foundation Discussion Papers 257, Cowles Foundation for Research in Economics, Yale University.
  7. Simon Feeny, 2000. "Determinants of Profitability: An Empirical Investigation Using Australian Tax Entities," Melbourne Institute Working Paper Series wp2000n01, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  8. Mark N. Harris & Weiping Kostenko & László Mátyás & Isfaaq Timol, 2009. "The Robustness Of Estimators For Dynamic Panel Data Models To Misspecification," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 54(03), pages 399-426.
  9. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1986. "The Intertemporal Stability of the Concentration-Margins Relationship," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 13-34, September.
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  11. Harris, M.N. & Matyas, L., 1996. "A Comparative Analysis of Different Estimatiors for Dynamic Panel data Models," Monash Econometrics and Business Statistics Working Papers 4/96, Monash University, Department of Econometrics and Business Statistics.
  12. Dennis Mueller & Burkhard Raunig, 1998. "Heterogeneities within industries and structure-performance models," Working Papers 36, Oesterreichische Nationalbank (Austrian Central Bank).
  13. Wansbeek, Tom & Bekker, Paul, 1996. "On IV, GMM and ML in a dynamic panel data model," Economics Letters, Elsevier, vol. 51(2), pages 145-152, May.
  14. Ravenscraft, David J, 1983. "Structure-Profit Relationships at the Line of Business and Industry Level," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 22-31, February.
  15. Dixon, Bruce L & Garcia, Philip & Anderson, Margot, 1987. "Usefulness of Pretests for Estimating Underlying Technologies Using Dual Profit Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 623-33, October.
  16. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
  17. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
  18. Levy, David, 1987. "The speed of the invisible hand," International Journal of Industrial Organization, Elsevier, vol. 5(1), pages 79-92, March.
  19. Mark Harris & Laszlo Matyas, 2000. "Performance of the operational Wansbeek-Bekker estimator for dynamic panel data models," Applied Economics Letters, Taylor & Francis Journals, vol. 7(3), pages 149-153.
  20. Liebowitz, S J, 1982. "What Do Census Price-Cost Margins Measure?," Journal of Law and Economics, University of Chicago Press, vol. 25(2), pages 231-46, October.
  21. Shepherd, William G, 1972. "The Elements of Market Structure," The Review of Economics and Statistics, MIT Press, vol. 54(1), pages 25-37, February.
  22. Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, vol. 43(171), pages 267-74, August.
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