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Mean-Reversion Of Net Profitability Among Polish Public Companies

Author

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  • Jacek Welc

Abstract

Abundant research shows that the feature of corporate financial results is the long-term reversion toward the levels average for the whole economy. In the case of earnings this means that companies which in a given year show above-average profitability in the following periods express the tendency to show decreasing profitability and companies which in a given year show below-average profitability in the following periods express the tendency to show increasing profitability. However, the research related to the existence of this phenomenon in the case of emerging economies is scarce so far. Therefore, we explore the reversion toward the mean of the net profitability of companies listed on the Warsaw Stock Exchange in the period of 2000-2009 years. We tested the hypothesis that the companies with aboveaverage / below-average net profitability in any year tend to experience the significant decrease / increase of this relative profitability in the following years. The research confirmed the strong tendency of net profitability to revert toward the economy-wide mean. However, according to our estimates, the process of total reversion to the mean takes about 8-9 years in the case of Polish public companies’ netprofitability.

Suggested Citation

  • Jacek Welc, 2011. "Mean-Reversion Of Net Profitability Among Polish Public Companies," Accounting & Taxation, The Institute for Business and Finance Research, vol. 3(2), pages 53-64.
    • Handle: RePEc:ibf:acttax:v:3:y:2011:i:2:p:53-64
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    File URL: http://www.theibfr2.com/RePEc/ibf/acttax/at-v3n2-2011/AT-V3N2-2011-4.pdf
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    References listed on IDEAS

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    1. Manfred Keil & Gary Smith & Margaret Smith, 2004. "Shrunken earnings predictions are better predictions," Applied Financial Economics, Taylor & Francis Journals, vol. 14(13), pages 937-943.
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    Cited by:

    1. I-Cheng Yeh & Yi-Cheng Liu, 2023. "Exploring the growth value equity valuation model with data visualization," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-37, December.

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    More about this item

    Keywords

    mean-reversion of earnings; corporate profitability; forecasting earnings;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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