Determinants of Profitability: An Analysis of Large Australian Firms

Melbourne Institute Working Paper No. 3/10

35 Pages Posted: 1 Jul 2010

See all articles by Andreas Stierwald

Andreas Stierwald

Melbourne Institute of Applied Economic and Social Research

Date Written: April 30, 2010

Abstract

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.

Keywords: Firm Performance, Determinants of Profit, Dynamic Panel Bias, Total Factor Productivity

JEL Classification: C23, D24, L25

Suggested Citation

Stierwald, Andreas, Determinants of Profitability: An Analysis of Large Australian Firms (April 30, 2010). Melbourne Institute Working Paper No. 3/10, Available at SSRN: https://ssrn.com/abstract=1632749 or http://dx.doi.org/10.2139/ssrn.1632749

Andreas Stierwald (Contact Author)

Melbourne Institute of Applied Economic and Social Research ( email )

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