IDEAS home Printed from https://ideas.repec.org/p/hhs/aareco/2004_015.html
   My bibliography  Save this paper

Persistence in Corporate Performance? - Empirical Evidence from Panel Unit Root Tests

Author

Listed:
  • Bentzen, Jan

    () (Department of Economics, Aarhus School of Business)

  • Madsen, Erik Strøjer

    () (Department of Economics, Aarhus School of Business)

  • Smith, Valdemar

    () (Department of Economics, Aarhus School of Business)

  • Dilling-Hansen, Mogens

    (Department of Economics, University of Aarhus)

Abstract

Persistence in corporate performance is analyzed in the framework of empirical tests of unit root behavior concerning firm profits. Data for firm-specific rates of return is applied in a set of panel unit root tests to address the question of persistence in profits both at firm level and for the aggregate level of industry-specific profits. The firm data all reject a null hypothesis of random walk behavior of profits but when smoothing profit rates at a two-digit NACE-code level for industries, the empirical evidence is more mixed as most industries show up with a unit root in aggregate rates of return, i.e. indicating persistence in corporate performance.

Suggested Citation

  • Bentzen, Jan & Madsen, Erik Strøjer & Smith, Valdemar & Dilling-Hansen, Mogens, 2004. "Persistence in Corporate Performance? - Empirical Evidence from Panel Unit Root Tests," Working Papers 04-15, University of Aarhus, Aarhus School of Business, Department of Economics.
  • Handle: RePEc:hhs:aareco:2004_015
    as

    Download full text from publisher

    File URL: http://www.hha.dk/nat/wper/04-15_jbesmvs.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Breuer, Janice Boucher & McNown, Robert & Wallace, Myles, 2002. " Series-Specific Unit Root Tests with Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(5), pages 527-546, December.
    2. Schwalbach, Joachim & Gra[beta]hoff, Ulrike & Mahmood, Talat, 1989. "The dynamics of corporate profits," European Economic Review, Elsevier, vol. 33(8), pages 1625-1639, October.
    3. 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.
    4. Sarno, Lucio & Taylor, Mark P., 1998. "Real exchange rates under the recent float: unequivocal evidence of mean reversion," Economics Letters, Elsevier, vol. 60(2), pages 131-137, August.
    5. Mueller,Dennis C., 2009. "Profits in the Long Run," Cambridge Books, Cambridge University Press, number 9780521101592.
    6. Breuer, Janice Boucher & McNown, Robert & Wallace, Myles S, 2001. "Misleading Inferences from Panel Unit-Root Tests with an Illustration from Purchasing Power Parity," Review of International Economics, Wiley Blackwell, vol. 9(3), pages 482-493, August.
    7. Strauss, Jack & Yigit, Taner, 2003. "Shortfalls of panel unit root testing," Economics Letters, Elsevier, vol. 81(3), pages 309-313, December.
    8. Taylor, Mark P. & Sarno, Lucio, 1998. "The behavior of real exchange rates during the post-Bretton Woods period," Journal of International Economics, Elsevier, vol. 46(2), pages 281-312, December.
    9. Mueller, Dennis C, 1977. "The Persistence of Profits above the Norm," Economica, London School of Economics and Political Science, vol. 44(176), pages 369-380, November.
    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. 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. Schohl, Frank, 1990. "Persistence of profits in the long run: A critical extension of some recent findings," International Journal of Industrial Organization, Elsevier, vol. 8(3), pages 385-404, September.
    13. 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.
    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. 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.
    2. 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.
    3. 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.
    4. repec:ags:sereko:206526 is not listed on IDEAS
    5. Wiberg, Daniel, 2009. "Persistence of Profits and the Systematic Search for Knowledge - R&D and profits above the norm," Working Paper Series in Economics and Institutions of Innovation 161, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

    More about this item

    Keywords

    Corporate performance; Persistence in profits; Panel unit root tests;

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:hhs:aareco:2004_015. 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: (Helle Vinbaek Stenholt). General contact details of provider: http://edirc.repec.org/data/nihhadk.html .

    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 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.

    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.