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International Comparison of Profitability Dispersion

In: Dynamics of Knowledge, Corporate Systems and Innovation

Author

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  • Makoto Nakano

    (Hitotsubashi University)

Abstract

This article measures profitability dispersion in ten major industrialized nations. We find that (1) profitability dispersion is widening in a global economy, (2) the dispersion level and its time-series behavior vary across countries, and (3) the dispersion level is high and is expanding in Anglo-Saxon countries. Meanwhile, non Anglo-Saxon countries have a relatively low dispersion level. Based on the measurement of profitability dispersion, we explore the determinants of the dispersion-widening phenomenon. Overall empirical results show that a positive relation is found between the annual change in the percentage of loss-incurring firms and the dispersion change. In addition, there exists size effect. Macroeconomic dispersion is expanding because the percentage share of small firms group in the economy is increasing. And small firms have higher dispersion among themselves than other firms. We interpret that small firms may be one of the most important determinants of profitability dispersion. Finally, risk-return characteristics of countries are analyzed. Each country has unique position in “risk-return plane.” This is almost consistent with the basic proposition in standard finance theory that returns inherently incorporate risks.

Suggested Citation

  • Makoto Nakano, 2010. "International Comparison of Profitability Dispersion," Springer Books, in: Hiroyuki Itami & Ken Kusunoki & Tsuyoshi Numagami & Akira Takeishi (ed.), Dynamics of Knowledge, Corporate Systems and Innovation, chapter 0, pages 267-291, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-04480-9_11
    DOI: 10.1007/978-3-642-04480-9_11
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