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Mean reversion in profitability for non-listed firms

Author

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  • Kjell Bjørn Nordal

    (Norges Bank)

  • Randi Næs

    (Norwegian Ministry of Trade and Industry)

Abstract

The presence of mean reversion in profitability at the firm level is important for valuation and prediction of growth and earnings. We investigate the mean reversion in accounting profitability for Norwegian non-listed firms for the period 1988-2006. We find a mean reversion rate of about 0.44. This is higher than found in other studies. We also find that small firms have a higher mean reversion rate than large firms. Previously, price-to-book ratios have been used to investigate changes in profitability over time for listed firms. We examine bankruptcy risk as an alternative variable for unlisted firms. We find that bankruptcy risk may help explain changes in profitability, but the results are not as strong as found in previous work.

Suggested Citation

  • Kjell Bjørn Nordal & Randi Næs, 2009. "Mean reversion in profitability for non-listed firms," Working Paper 2009/29, Norges Bank.
    • Handle: RePEc:bno:worpap:2009_29
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    File URL: https://www.norges-bank.no/en/news-events/news-publications/Papers/Working-Papers/2009/WP-200929/
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    References listed on IDEAS

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    Cited by:

    1. Monika Wieczorek-Kosmala & Joanna Błach & Iwona Gorzeń-Mitka, 2021. "Does Capital Structure Drive Profitability in the Energy Sector?," Energies, MDPI, vol. 14(16), pages 1-15, August.
    2. Kjell Bjørn Nordal & Randi Næs, 2010. "The relationship between bankruptcy risk and growth for non-listed firms," Working Paper 2010/31, Norges Bank.

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    More about this item

    Keywords

    Non-listed firms; profitability; mean reversion;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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