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Title: Profitability dynamics in emerging markets
Author: Jiang, N.
Awarding Body: University of Cambridge
Current Institution: University of Cambridge
Date of Award: 2010
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Abstract:
It is commonly accepted that competition whittles down transient rents enjoyed by any firm, and hence firm level profitability tends to what may be called a normal rate. Various econometric models have been developed to evaluate profitability convergence, or its absence. We analyse this question for China and India. We examine the extent to which deviations from expected values of profitability tend to be corrected among Chinese and Indian companies. Developing and applying the Fama-MacBeth approach, we find that the dynamics of profitability in the two emerging economies are characterised by a significant degree of mean reversion. In recent decades competitive environments around the world have changed, driven by waves of privatisation, liberalisation, and globalisation. On the one hand these changes are expected to have increased the intensity of competition, and this changing intensity should be reflected in the dynamics of profitability across firms through higher degrees of convergence. On the other hand, another important aspect of globalisation is the attendant increase in the volatility of business environment – shocks of various types which impact on firms and affect their performance grow in numbers and frequency, while firms are less sheltered than before. In such environments, firms would be less inclined to sink investment, and thus convergence to normal returns can conceivably slow down and even reverse. To examine the dynamics in the evolution of profitability distributions under such conditions, we use China’s WTO accession (in 2001) and India’s liberalisation reform (since 1991) as natural points to shed light on the long-term profitability prospects. Has liberalisation in a globalising world led to the convergence in profitability; or has the volatility led to divergence in profitability in these countries? Results suggest that integration into the global market has increased the dispersion of the long run (ergodic) distribution of (expected) profitability and there are more firms operating at the extreme tails of the long run profitability distribution.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID: uk.bl.ethos.605603  DOI: Not available
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