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Intensity of competition in China: profitability dynamics of Chinese listed companies

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  • Neng Jiang
  • Paul A. Kattuman

Abstract

How intense is market competition in the Chinese economy? We extend to China, the literature that measures the intensity of market competition in terms of the persistence of firm profitability from year to year. The fundamental notion is that intense competition will quickly evaporate any short run quasi-rents enjoyed by any company, and force each to revert to its own ‘normal’ level of profitability, as determined by its command over various strategic resources. We examine the extent to which deviations from their expected values of profitability tend to be corrected among quoted companies in China. Our estimates, based on Chinese listed companies over the 11-year period to 2005, find that the rate of mean reversion in profitability is 55%. This suggests an intensely competitive market. We also find that the state owned enterprises (SOEs) have a higher propensity to revert to their expected profitability, at the average rate of 76%, suggesting that they are subject to more intense competitive pressure.

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  • Neng Jiang & Paul A. Kattuman, 2010. "Intensity of competition in China: profitability dynamics of Chinese listed companies," Asia Pacific Business Review, Taylor & Francis Journals, vol. 16(3), pages 461-481, July.
    • Handle: RePEc:taf:apbizr:v:16:y:2010:i:3:p:461-481
    DOI: 10.1080/13602380902949321
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    References listed on IDEAS

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    1. Adelina Gschwandtner, 2004. "Evolution of Profit Persistence in the US: Evidence from four 20-years periods," Vienna Economics Papers 0410, University of Vienna, Department of Economics.
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    Cited by:

    1. Liu, Li & Liu, Qigui & Tian, Gary & Wang, Peipei, 2018. "Government connections and the persistence of profitability: Evidence from Chinese listed firms," Emerging Markets Review, Elsevier, vol. 36(C), pages 110-129.
    2. Maja Pervan & Marijana Curak & Tomislava Pavic Kramaric, 2017. "The Influence of Industry Characteristics and Dynamic Capabilities on Firms’ Profitability," IJFS, MDPI, vol. 6(1), pages 1-19, December.

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