Firm profitability: Mean-reverting or random-walk behavior?

被引:19
作者
Canarella, Giorgio [1 ,2 ]
Miller, Stephen M. [2 ]
Nourayi, Mahmoud M. [3 ]
机构
[1] Calif State Univ Los Angeles, Los Angeles, CA 90032 USA
[2] Univ Nevada, Las Vegas, NV 89154 USA
[3] Loyola Marymount Univ, Los Angeles, CA 90045 USA
关键词
Cross-section dependence; Unit roots; Panel data; Hysteresis; Firm profitability;
D O I
10.1016/j.jeconbus.2012.11.002
中图分类号
F8 [财政、金融];
学科分类号
0202 ;
摘要
We analyze the stochastic properties of three measures of profitability, return on assets (ROA), return on equity (ROE), and return on investment (ROI), using a balanced panel of US firms during the period 2001-2010. We employ a panel unit-root approach, which assists in identifying competitive outcomes versus situations that require regulatory intervention to achieve more competitive outcomes. Based upon conventional panel unit-root tests, we find substantial evidence supporting mean-reversion, which, in turn, lends support to the long-standing "competitive environment" hypothesis originally set forward by Mueller (1977). These results, however, prove contaminated by the assumption of cross-section independence. After controlling for cross-section dependence, we find that profitability evolves as a non-stationary process in some sectors in the US economy. Our findings, especially taken as a whole, remain fairly robust to various assumptions regarding the underlying data generation process. (C) 2012 Elsevier Inc. All rights reserved.
引用
收藏
页码:76 / 97
页数:22
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