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Explaining the persistence of profits: A time-varying approach

The present paper analyzes the determinants of profit persistence using a newly developed methodology that allows for the persistence parameter to vary with time. It therefore addresses a significant limitation of previous persistence models, which have assumed unrealistically that persistence is fixed over relatively long period of 20 years upwards. The concentration and the size of the industry are found to have a significant positive impact on profit persistence. However, at firm level, market share and risk have surprisingly a negative impact on profit persistence.

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File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie0806.pdf
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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0806.

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Date of creation: Jun 2008
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Handle: RePEc:vie:viennp:0806
Contact details of provider: Web page: http://www.univie.ac.at/vwl

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  1. Jesús Crespo-Cuaresma & Adelina Gschwandtner, 2003. "The competitive environment hypothesis revisited: Nonlinearity, nonstationrity and profit persistence," Vienna Economics Papers 0316, University of Vienna, Department of Economics.
  2. Harris, Frederick H deB, 1986. "Market Structure and Price-Cost Performance under Endogenous Profit Risk," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 35-59, September.
  3. Adelina Gschwandtner, 2004. "Profit Persistence in the "Very" Long Run: Evidence from Survivors and Exiters," Vienna Economics Papers 0401, University of Vienna, Department of Economics.
  4. Lang, Larry H P & Stulz, Rene M, 1994. "Tobin's q, Corporate Diversification, and Firm Performance," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1248-80, December.
  5. B. Burcin Yurtoglu, 2004. "Persistence of firm-level profitability in Turkey," Applied Economics, Taylor & Francis Journals, vol. 36(6), pages 615-625.
  6. Jes�S Crespo Cuaresma & Adelina Gschwandtner, 2008. "Tracing The Dynamics Of Competition: Evidence From Company Profits," Economic Inquiry, Western Economic Association International, vol. 46(2), pages 208-213, 04.
  7. Shepherd, William G, 1972. "The Elements of Market Structure," The Review of Economics and Statistics, MIT Press, vol. 54(1), pages 25-37, February.
  8. 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.
  9. Galai, Dan & Masulis, Ronald W., 1976. "The option pricing model and the risk factor of stock," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 53-81.
  10. Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  11. Fisher, I N & Hall, George R, 1969. "Risk and Corporate Rates of Return," The Quarterly Journal of Economics, MIT Press, vol. 83(1), pages 79-92, February.
  12. Esposito, Louis & Esposito, Frances Ferguson, 1971. "Foreign Competition and Domestic Industry Profitability," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 343-53, November.
  13. Ben-Zion, Uri & Shalit, Sol S, 1975. "Size, Leverage, and Dividend Record as Determinants of Equity Risk," Journal of Finance, American Finance Association, vol. 30(4), pages 1015-26, September.
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