Persistence of profitability in top firms: does it vary across sectors?

Abstract

Purpose The purpose of this paper is to analyze variations in the degree of persistence of profitability across diverse economic sectors and industry groups over the time period of 1990-2014 for a sample of top publically listed firms belonging to a selected set of developed and developing economies. Design/methodology/approach Degree of profit persistence has been estimated using Mueller’s (1990) autoregressive methodology. Firms were classified into different economic sectors and industry groups as per the Global Industry Classification Standard (GICS). The examination of inter-sectoral variations in profit persistence has been performed by comparing mean values of estimated short-run and long-run profit persistence parameter for all firms and between firms belonging to the developed and developing countries, respectively. Findings Firms in consumer staples, consumer discretionary and health care enjoy persistent above the norm returns, unlike firms in traditional industries, utilities and energy sectors, which are characterized by low persistence and below the norm returns. A high degree of profit persistence is observed in health care and idea- and technology-intensive sector in the developed countries; however, in the developing countries, profits persist higher in consumer discretionary and capital-intensive telecommunication services sectors. Originality/value The study provides a holistic examination of inter-sectoral variations in profit persistence of top firms in developed and developing economies using a uniform methodology and data set. It can serve as an aid to the competition commissions and anti-trust regulatory authorities to formulate policies for curtailing anti-competitive activities in certain sectors.