Do firm sizes and profit rates converge? Evidence on Gibrat's Law and the persistence of profits in the long run
Three panel unit root tests are applied to a 31-year firm size, growth and profit rate data set for 96 large, quoted UK firms. All tests reject the unit root null for log size if the Augmented Dickey Fuller autoregressions exclude a linear time trend. If a linear trend is included, the results are more ambiguous and appear to differ systematically between tests. The view that firm growth is either random or near-random does not receive unequivocal support in all tests. There is however strong and consistent evidence of mean-reversion in profit rates.
Volume (Year): 38 (2006)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAEC20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAEC20|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Geroski, Paul A & Samiei, Hossein & Urga, Giovanni, 1997.
"Are Differences in Firm Size Transitory or Permanent?,"
CEPR Discussion Papers
1691, C.E.P.R. Discussion Papers.
- G. Urga & P. A. Geroski & S. Lazarova & C. F. Walters, 2003. "Are differences in firm size transitory or permanent?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 47-59.
- Goddard, John & Molyneux, Phil & Wilson, John O S, 2004. "Dynamics of Growth and Profitability in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 1069-90, December.
- Jack Glen & Kevin Lee & Ajit Singh, 2002.
"Corporate profitability and the dynamics of competition in emerging markets: a time series analysis,"
ESRC Centre for Business Research - Working Papers
wp248, ESRC Centre for Business Research.
- Jack Glen & Kevin Lee & Ajit Singh, 2003. "Corporate profitability and the dynamics of competition in emerging markets: a time series analysis," Economic Journal, Royal Economic Society, vol. 113(491), pages F465-F484, November.
- Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2001. "The relationship between size and growth: the case of Italian newborn firms," Applied Economics Letters, Taylor & Francis Journals, vol. 8(7), pages 451-454.
- 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.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
- Tom Doan, . "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- J. O. S. Wilson & J. M. Williams, 2000. "The size and growth of banks: evidence from four European countries," Applied Economics, Taylor & Francis Journals, vol. 32(9), pages 1101-1109.
- 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.
- Villalonga, Belen, 2004. "Intangible resources, Tobin's q, and sustainability of performance differences," Journal of Economic Behavior & Organization, Elsevier, vol. 54(2), pages 205-230, June.
- Mita Bhattacharya & Harry Bloch, 2000. "Adjustment of Profits: Evidence from Australian Manufacturing," Empirica, Springer, vol. 27(2), pages 157-173, June.
- Chang, Yoosoon, 2002.
"Nonlinear IV Unit Root Tests in Panels with Cross-Sectional Dependency,"
2000-08, Rice University, Department of Economics.
- Chang, Yoosoon, 2002. "Nonlinear IV unit root tests in panels with cross-sectional dependency," Journal of Econometrics, Elsevier, vol. 110(2), pages 261-292, October.
- Yoosoon Chang, 2000. "Nonlinear IV Unit Root Tests in Panels with Cross-Sectional Dependency," CIRJE F-Series CIRJE-F-85, CIRJE, Faculty of Economics, University of Tokyo.
- Toke Reichstein & Michael Dahl, 2004. "Are Firm Growth Rates Random? Analysing Patterns and Dependencies," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(2), pages 225-246.
- David Peel & Michael Peel & Ioannis Venetis, 2004. "Further empirical analysis of the time series properties of financial ratios based on a panel data approach," Applied Financial Economics, Taylor & Francis Journals, vol. 14(3), pages 155-163.
- Mueller,Dennis C., 1986.
"Profits in the Long Run,"
Cambridge University Press, number 9780521306935, 1.
- Cabral, Luis, 1995. "Sunk Costs, Firm Size and Firm Growth," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 161-72, June.
- Davies, Stephen & Rondi, Laura & Sembenelli, Alessandro, 2001. "European Integration and the Changing Structure of EU Manufacturing, 1987-1993," Industrial and Corporate Change, Oxford University Press, vol. 10(1), pages 37-75, March.
- 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.
When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:38:y:2006:i:3:p:267-278. 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: (Michael McNulty)
If references are entirely missing, you can add them using this form.