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

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  • Jack Glen
  • Kevin Lee
  • Ajit Singh

Abstract

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 - capital-output ratios and profit margins. These too raise important general issues of economic interpretation for PP studies which are outlined

Suggested Citation

  • Jack Glen & Kevin Lee & Ajit Singh, 2002. "Corporate profitability and the dynamics of competition in emerging markets: a time series analysis," Working Papers wp248, Centre for Business Research, University of Cambridge.
  • Handle: RePEc:cbr:cbrwps:wp248
    Note: PRO-2
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    References listed on IDEAS

    as
    1. 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.
    2. Geroski, Paul A & Jacquemin, Alexis, 1988. "The Persistence of Profits: A European Comparison," Economic Journal, Royal Economic Society, vol. 98(391), pages 375-389, June.
    3. 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.
    4. Mueller,Dennis C., 2009. "Profits in the Long Run," Cambridge Books, Cambridge University Press, number 9780521101592, May.
    5. Singh, Ajit & Weisse, Bruce, 1998. "The Asian model: a crisis foretold," MPRA Paper 54002, University Library of Munich, Germany.
    6. Reder, Melvin W, 1982. "Chicago Economics: Permanence and Change," Journal of Economic Literature, American Economic Association, vol. 20(1), pages 1-38, March.
    7. Ajit Singh, 2006. "Competition and Competition Policy in Emerging Markets: International and Developmental Dimensions," Chapters,in: Growth and Economic Development, chapter 12 Edward Elgar Publishing.
    8. Amsden, Alice H. & Singh, Ajit, 1994. "The optimal degree of competition and dynamic efficiency in Japan and Korea," European Economic Review, Elsevier, vol. 38(3-4), pages 941-951, April.
    9. Patterson, K. D., 2000. "Bias reduction in autoregressive models," Economics Letters, Elsevier, vol. 68(2), pages 135-141, August.
    10. 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 427-442, June.
    11. Singh, A. & Hamid, J., 1992. "Corporate Financial Structure in Developing Countries," Papers 1, World Bank - International Finance Corporation.
    12. Asplund, Björn Marcus & Nocke, Volker, 2000. "Imperfect Competition, Market Size and Firm Turnover," CEPR Discussion Papers 2625, C.E.P.R. Discussion Papers.
    13. 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.
    14. B. Burcin Yurtoglu, 2004. "Persistence of firm-level profitability in Turkey," Applied Economics, Taylor & Francis Journals, vol. 36(6), pages 615-625.
    15. Singh, Ajit, 1994. "Corporate financial patterns in industrialising economies: a comparative international study," MPRA Paper 54936, University Library of Munich, Germany.
    16. Geroski, Paul A & Machin, Stephen & Walters, Christopher F, 1997. "Corporate Growth and Profitability," Journal of Industrial Economics, Wiley Blackwell, vol. 45(2), pages 171-189, June.
    17. Waring, Geoffrey F, 1996. "Industry Differences in the Persistence of Firm-Specific Returns," American Economic Review, American Economic Association, vol. 86(5), pages 1253-1265, December.
    18. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Ajit Singh, 2006. "Competition and Competition Policy in Emerging Markets: International and Developmental Dimensions," Chapters,in: Growth and Economic Development, chapter 12 Edward Elgar Publishing.
    2. Ajit Singh & Ann Zammit, 2006. "Corporate Governance, Crony Capitalism and Economic Crises: should the US business model replace the Asian way of "doing business"?," Corporate Governance: An International Review, Wiley Blackwell, vol. 14(4), pages 220-233, July.
    3. Glen, Jack & Singh, Ajit, 2004. "Comparing capital structures and rates of return in developed and emerging markets," Emerging Markets Review, Elsevier, vol. 5(2), pages 161-192, June.
    4. Goddard, John & Tavakoli, Manouche & Wilson, John O.S., 2009. "Sources of variation in firm profitability and growth," Journal of Business Research, Elsevier, vol. 62(4), pages 495-508, April.
    5. Milberg, William., 2004. "The changing structure of international trade linked to global production systems : what are the policy implications?," ILO Working Papers 993701203402676, International Labour Organization.
    6. Ajit Singh, 2014. "Competition, Competition Policy, Competitiveness, Globalisation & Development," Working Papers wp460, Centre for Business Research, University of Cambridge.
    7. Ajit Singh, 2003. "Competition, corporate governance and selection in emerging markets," Economic Journal, Royal Economic Society, vol. 113(491), pages 443-464, November.
    8. Diagne, Youssoupha S & Sène, Serigne Moustapha, 2009. "La profitabilité des secteurs de l’économie sénégalaise
      [Profitability of economic sectors in Senegal]
      ," MPRA Paper 54921, University Library of Munich, Germany.
    9. Alper Aslan & Kemal Koksal & Oguz Ocal, 2011. "Competitive Environment Hypothesis in Turkish Banking System," International Journal of Economics and Financial Issues, Econjournals, vol. 1(2), pages 74-77, June.
    10. repec:ilo:ilowps:370120 is not listed on IDEAS
    11. Goddard, John & Liu, Hong & Molyneux, Philip & Wilson, John O.S., 2011. "The persistence of bank profit," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2881-2890, November.
    12. Saeed Ahmed, 2007. "Forecasting Profitability, Earnings, and Corporate Taxes: Evidence from UK Companies," SBP Working Paper Series 16, State Bank of Pakistan, Research Department.
    13. Alfarano, Simone & Milaković, Mishael & Irle, Albrecht & Kauschke, Jonas, 2012. "A statistical equilibrium model of competitive firms," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 136-149.
    14. Zhao, Tianshu & Casu, Barbara & Ferrari, Alessandra, 2010. "The impact of regulatory reforms on cost structure, ownership and competition in Indian banking," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 246-254, January.
    15. John Goddard & David McMillan & John Wilson, 2006. "Do firm sizes and profit rates converge? Evidence on Gibrat's Law and the persistence of profits in the long run," Applied Economics, Taylor & Francis Journals, vol. 38(3), pages 267-278.
    16. 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.
    17. Jack Glen & Ajit Singh, 2005. "Corporate Governance, Competition, and Finance: Re-thinking Lessons from the Asian Crisis," Eastern Economic Journal, Eastern Economic Association, vol. 31(2), pages 219-243, Spring.
    18. Altomonte, Carlo & Nicolini, Marcella, 2012. "Economic integration and the dynamics of firms’ competitive behavior," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 383-402.
    19. William Milberg, 2007. "WP 2007-9 Shifting Sources and Uses of Profits: Sustaining U.S. Financialization with Global Value Chains," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2007-9, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    20. Bhattacharjeean, Arnab & Majumdar, Sumit K., 2011. "How much does industry matter in an emerging market economy?," SIRE Discussion Papers 2011-51, Scottish Institute for Research in Economics (SIRE).
    21. Tarziján, Jorge & Brahm, Francisco & Daiber, Luis Felipe, 2008. "Entrepreneurial profitability and persistence: Chile versus the U.S.A," Journal of Business Research, Elsevier, vol. 61(6), pages 599-608, June.
    22. Dominic Chai & Simon Deakin & Prabirjit Sarkar & Ajit Singh, 2014. "Corporate Governance, Legal Origin & the Persistence of Profits," Working Papers wp465, Centre for Business Research, University of Cambridge.
    23. Kaplan, Muhittin & Aslan, Alper, 2006. "Persistence of Profitability and the Dynamics of Competition in Turkey, 1985-2004," MPRA Paper 10602, University Library of Munich, Germany.
    24. Arnab Bhattacharjee & Sumit K. Majumdar, 2011. "How much does industry matter in an emerging market economy?," Dundee Discussion Papers in Economics 256, Economic Studies, University of Dundee.
    25. 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.

    More about this item

    Keywords

    Competition; profitability; persistence; emerging markets;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F02 - International Economics - - General - - - International Economic Order and Integration

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