Investigating Profit Persistence Among Hungarian Plastic Manufacturing Companies

Abstract

This study examines the competitive nature of the Hungarian plastics industry sector based on 2010-2019 data from the Crefoport database.. The aim of the study is to examine that how close the market of plastic industry companies is to perfect competition. Market efficiency was investigated using a Markov chain and profit persistence estimation (Arellano & Bond, 1991). Corporate profitability was measured using the ROA indicator. Variables reflecting industry and market effects are also included in the analysis as controls. Based on the Markov transition probability matrix, market competition is harmed. Based on the panel model estimation, the profit persistence value shows a low value (0.129) compared to the existing literature. The profitability of plastic companies can be statistically proven to be affected by company size (p = -0.046), short (p = 0.016) and long risk (p=-0.093), and the volatility of profitability (p = 0.633). Among the exogenous variables, industry income (p=0.081) and market concentration (p = 0.974) have a significant effect on the profitability of companies. Limited market competition reduces overall social benefit and efficiency in several ways: it reduces price competition, quality orientation, and the pursuit of innovations. Therefore, from the point of view of economic policy , it is definitely justified that the sector receives subsidies in an appropriate amount that improves the efficiency and productivity of small and medium-sized enterprises, as well as encourage technological development and innovation.