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Determinants of Profitability: An Analysis of Large Australian Firms

  • Andreas Stierwald

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

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    This paper identifies the determinants of firm profitability and quantifies their relative importance. Using a panel of large Australian firms for the period 1995 to 2005, the analysis estimates a dynamic profit model that, unlike most existing research, directly includes measures of productivity and productivity persistence. Descriptive statistics illustrate that the sample is characterized by a large amount of profit heterogeneity, and that substantial differences exist between industries and across firms. Estimation results indicate that firm profitability is predominantly determined by firm-level characteristics, and that sector effects are relevant, but to a much smaller extent. The analysis also reveals that, among firm effects, productivity and productivity persistence enhance profitability.

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    File URL: http://melbourneinstitute.com/downloads/working_paper_series/wp2010n03.pdf
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    Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2010n03.

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    Length: 35 pages
    Date of creation: Apr 2010
    Date of revision:
    Handle: RePEc:iae:iaewps:wp2010n03
    Contact details of provider: Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
    Phone: +61 3 8344 2100
    Fax: +61 3 8344 2111
    Web page: http://www.melbourneinstitute.com/
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