A study of company profit-rate time series: Japan and the United States

Abstract

Usinf the methodology of D.C. Mueller as well as the alternative model we propose, we estimate the long-run profit rate (normalized to the cross-company mean in each year to eliminate the effect of the general rise or decline in profitability) of each of 294 major Japanese manufacturing corporations using the time series of its profit rate over 1964–1980. Three of the major findings are (1) a company with a high (low) initial profit rate tended to earn a high (low) profit rate even in the long run, implying a persistence of intercompany profit-rate differences, and (2) across companies, the estimated long-run profit rates were similarly distributed between Japan (our estimates) and the United States (Mueller's estimates), but (3) the movement of profit rate is more volatile and can be less well explained by the model in Japan. Further studies on the time series of the company profit rate revealed that the cross-company variance of the normalized profit rate (which equals the coefficient of variation of the unnormalized profit rate) was smaller in Japan in every year from 1964 to 1972, which together with the observed larger interindustry profit-rate differences, suggests smaller intraindustry intercompany profit-rate differences in Japan. Some preliminary discussions are given to eplain these findings.