Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 04-15: Persistence in Corporate Performance? - Empirical Evidence from Panel Unit Root Tests

Jan Bentzen (), Erik Strøjer Madsen (), Valdemar Smith () and Mogens Dilling-Hansen
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Jan Bentzen: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Erik Strøjer Madsen: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Valdemar Smith: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Mogens Dilling-Hansen: Department of Economics, University of Aarhus, Postal: University of Aarhus, Department of Economics, Building 322, DK-8000 Aarhus C

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.

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

JEL-codes: C30; L20

25 pages, December 10, 2004

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04-15_jbesmvs.pdf PDF-file

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