Long-run Profit Research Articles

Profit maximizing behavior of banks in Bangladesh

A well-developed financial system has been widely understood as a stimulant in accelerating economic growth by easing frictions, mobilizing savings and facilitating investment in an efficient manner (Levine 1997, Rahman 2003). The financial sector reform and its follow-up developments in Bangladesh is an ongoing process. Given the current status of the financial development, this study is intended to frame a testable hypothesis such that inter-group comparisons of marginal productivity of labor and capital of banks in Bangladesh could be tested that would allow us to see if banks in Bangladesh are employing labor and capital efficiently in their profit maximizing behavior. A panel data model - seemingly unrelated regression (SUR) is used based on yearly data covering 2006-2015 for four groups of banks, namely state-owned commercial banks (SCBs), private commercial banks (PCBs), foreign commercial banks (FCBs) and specialized banks (SBs) operating in Bangladesh.The market shares (based on 2006-2015 average figure) in deposits, advances, operating income and total manpower are dominated by the PCBs, while SCBs enjoy the second position followed by FCBs and SBs. Currently 56 scheduled banks are operating in Bangladesh, among them 6 are state-owned commercial banks (SCBs), 2 are specialized banks (SBs), 9 are foreign private banks (FCBs) and 39 are domestic private banks (PCBs) of which 8 are full-pledged Islamic banks. As of end February 2016, the total number of reported bank branches including Head Offices, Islamic Windows and SME service centers stood at 9,410 with 4,072 urban and 5,338 rural branches. Although the central bank of Bangladesh has been monitoring day-to-day development of the banking activities, there is no formal assessment of banking system's profit maximizing behavior has so far been made.This paper also examines if there is any productivity - remuneration gap in labor and capital employment to know if banks in Bangladesh are operating in a competitive environment. The estimated results from Zellner's Seemingly Unrelated Regressions (SUR) procedure indicate that none of the bank groups is employing labor and capital efficiently. Operating earnings elasticities of labor are not significantly different from zero for all groups, while the same are positive for capital. The higher capital intensive banks are making more money than those with lower capital intensity. All of the banks are operating at non-optimal level in a non-competitive environment. They are over-employing labor and under-employing capital relative to the long-run profit maximizing level. The findings of the paper also confirm that there are significant gaps between productivity - remuneration for both the inputs i.e., labor and capital employment in banks of Bangladesh.Therefore, proper policy interventions are needed to enhance competitive environment among banks to ensure efficient and optimal uses of labor and capital. Appropriate policy initiatives to improve managerial efficiency and good governance for the state owned commercial and specialized banks are also recommended.

Cost analysis of rice milling: a case study of 7 rice mills in Malaysia

Purpose The purpose of this paper is to examine the long-run profitability of rice milling operation in Malaysia and see how sensitive it is to changes in paddy purchases, rice recovery ratio and paddy price. Design/methodology/approach Using a purposive sampling technique and semi-structured interviews, seven rice mills in Malaysia were selected to obtain data on operational details and business accounts. The paper provides a qualitative and descriptive account of the rice mill’s profitability by using cost curves, a simple linear regression and the Monte Carlo simulation. Findings The rice milling operation in Malaysia is profitable in the long run, provided that there is a market for by-products. Large private mills have lower average costs, helping them obtain higher profit margins. Public mills that receive a rice miller subsidy are more protected than small private mills that operate without the rice miller subsidy and under price controls. Changes in paddy purchases, paddy price and recovery ratio affect the profitability to varying degrees. Research limitations/implications Incomplete information provided by the interviewees. The analysis result is only a rough estimate. However, it may provide a useful insight into the Malaysian rice milling sector and its competitiveness. Originality/value There are few economic studies of the rice milling sector in Malaysia. However, it plays an important role along the rice supply chain. There is a need for better understanding of the industry in order to obtain economic sustainability and effective policies. This paper provides the gap by providing an insight into the long-run profitability of rice milling operation in Malaysia.

Economic Returns to Herbicide Resistance Management in the Short and Long Run: The Role of Neighbor Effects

A bioeconomic model is used to estimate how managing glyphosate resistance to horseweed affects short- and long-run profits in corn, soybean, and corn-soybean rotation systems. Model results found that resistance management reduces profits in the first year of implementation, but increases profits in the second and subsequent 18 yr. In all three systems, long run gains begin to outweigh short-run costs (and resistance management “pays for itself”) by the second year. Over a 20-yr horizon, the estimated annual average profit advantage from managing resistance exceeded $158 ha–1($64/acre) for corn, $137 ha–1($55/acre) for corn-soybean, and $55 ha–1($22/acre) for soybean. Seed immigration from a neighbor's field can reduce these gains, but this reduction is negligible if the neighbor also practices resistance management. If the neighbor did not manage resistance, however, the grower's estimated annual profit advantage fell to roughly $123 ha–1($50/acre) for corn, $60 ha–1($24/acre) for the corn-soybean rotation, and virtually zero for soybean. Methods applied in this study identify corn and corn-soybean rotations as cases where resistance management “pays for itself' quickly and significantly, even if the neighbor does not manage resistance. Continuous soybean presents a more challenging case that may require additional programs and incentives to encourage collective resistance management among growers. Even for continuous soybean, however, joint grower–neighbor resistance management can pay for itself within 2 yr.

Profit persistence and stock returns

ABSTRACTThis article attempts to assemble further empirical evidence on the relationship between the product and the financial market. Drawing back on work in industrial organization, we analyse the relationship between profit persistence and factor-adjusted stock returns looking at about 2000 listed US firms over the last 34 years. While the relationship between (current, lagged and unexpected) profits/earnings and returns has been extensively analysed before, to our knowledge this is the first study to look at the relationship between stock returns and profit persistence. We interpret profit persistence as a result of market competition and innovation of the firm. It is shown that firm-specific long-run profit persistence after correction for other additional economic fundamentals of the firm has a positive impact on four-factor adjusted returns and a negative impact on their volatility.

The Economic Impact of CERN Procurement: Evidence from the Large Hadron Collider

Building the Large Hadron Collider (1995-2008) required frontier technologies. We wanted to discover whether there has been a long-term learning by doing effect on CERN suppliers' profitability, beyond the initial order. The evidence on this effect was until now fragmentary, mainly based on interviews or case histories. CERN granted us access to their LHC procurement database, including 1360 suppliers from 35 countries for a total of 11969 orders. We collected 23-year long time series of financial data (1991-2013) for a large sample of companies. After controlling for time fixed-effects and trends, firm-level and country-level possible confounding factors, we observe a statistically significant (p<0.01) 'CERN effect' on long-run profit margin of high-tech suppliers, while the effect on non-high-tech suppliers is not statistically significant.

The Preventive Maintenance and Inspection Policy for the System with Two Types of Failures

In this paper, the optimal inspection and preventive maintenance policy are investigated for a system with two types of failures, one type of failure is repairable, and the other is unrepairable. When the working time of the system reaches time T, the system will be detected, if a repairable failure is found then a failure repair will be carried out, and if an unrepairable failure is found then the system will be replaced. Otherwise, a preventive repair will be carried out. The system will be replaced by a new and identical one at the time following the Nth repairable failure. We look for a bivariate optimal policy which makes the long-run expected profit per unit time maximization. The long-run average profit per unit time is obtained explicitly. Finally, we compute numerically a bivariate approximate optimal policy.

Marketing return on investment: Seeking clarity for concept and measurement

As the need for accountable marketing spending continues to grow, companies must develop sound metrics and measures of marketing’s contribution to firm profitability. The leading metric has been return on marketing investment (MROI), following the widespread adoption of ROI metrics in other parts of the organisation. However, the ROI metric in marketing is typically interpreted and used in a variety of ways, which causes ambiguity and suboptimal marketing decision making. This paper seeks to remove the ambiguity around MROI to guide better measurements and analytics aligned to financial contribution. The authors first provide a formal definition of MROI and review variations in the use of MROI that are the root cause of ambiguity in interpretation. The authors come to the conclusion that MROI estimates would be more transparently described if those providing the estimates used the following form: Our analysis measured a (total, incremental, or marginal) MROI of (scope of spending) using (valuation method) over time period. The paper proceeds to describe five case studies that illustrate the various uses of MROI, covering different marketing initiatives in different business sectors. The authors describe the important links between marketing lift metrics (such as response elasticities) and MROI. The final section of the paper focuses on the connection between MROI and business objectives. While management’s prerogative is to maximise short- and long-run profits, that is not equivalent to maximising MROI. The authors demonstrate that MROI plays a different role in the process of marketing budget setting (a marketing strategic task) versus allocating a given budget across different marketing activities (a marketing operations task). They highlight the role of setting MROI hurdle rates that recognise not only marketing’s ability to drive revenue, but also the firm’s cost of capital. The authors hope that their recommendations will help the marketing profession achieve a common understanding of how to assess and use what they believe is its most important summary productivity metric, MROI.

Long-Run Profits in Times of Crisis: A Comparison between European SMEs and Large Companies

This is pioneering research in that it makes a comparison of the process of convergence of long-run profits in the manufacturing sector of six European countries (2000-12), differentiating between SMEs and large firms, and by identifying the impact of the crisis on this process. The results obtained by employing the convergence model, known as the Partial Adjustment Model, indicate that the inter-country competitive process, is working better among large companies than among SMEs. The impact of the crisis on this process has been uneven across the countries and the sizes of the firms.

Long-run profits in times of crisis: A comparison between European SMEs and large companies

This is pioneering research in that it makes a comparison of the process of convergence of long-run profits in the manufacturing sector of six European countries (2000-12), differentiating between SMEs and large firms, and by identifying the impact of the crisis on this process. The results obtained by employing the convergence model, known as the Partial Adjustment Model, indicate that the inter-country competitive process, is working better among large companies than among SMEs. The impact of the crisis on this process has been uneven across the countries and the sizes of the firms.

Optimal sales team's initiatives and pricing of pharmaceutical products

The paper proposes a production-inventory model for pharmaceutical new-products considering long-run profitability and growth of a firm. The demand rate of the new-product, when launched in a market, is dependent on revenue from sales unit, level of stock in hand and advertising/sales team constituted by general physician, pharmacist and other salesmen of the firm. An optimal control policy based on its dynamical system is solved to obtain optimal revenue and advertising effort over time. The paper investigates a stable relation among revenue, advertising effort and sales rate by examining the equilibrium property of a dynamical system. The model also estimates the cost overtime of government and nongovernment organisations.

Botched Starch Serving: Avoidable Problems in Modern Dairying

Starch overfeeding is a simple mismanagement in modern dairy farming that causes complex problems in animal health and farm economics. The temporary increases in milk production makes over-modernized farmers mostly blind to oversee jeopardized prospects of longevity and long-run efficiency and profitability. In addition, over-focus on grain processing technologies keeps farmers from paying adequate deserving attention to optimizing dietary inclusion rate of starchy grains. This article establishes a global policy to help dairy farmers improve farm economics and minimize health issues in the postmodern era.

Optimal Livestock Management on Sagebrush Rangeland with Ecological Thresholds, Wildfire, and Invasive Plants

This article considers optimal livestock management on sagebrush rangeland in the presence of invasive plants, wildfire, and reversible and irreversible ecological thresholds. We find that ranchers operating on healthy rangeland have sufficient private incentive to maintain rangeland health, while ranchers operating on degraded rangeland will pursue rehabilitation only if treatment success rates are improved or treatment costs reduced relative to current levels. We also find that if ranchers do not understand the relationships among grazing pressure, vegetation treatments, and rangeland ecological dynamics, their management will result in higher short-run profits, but lower long-run profits, and greater ecological degradation. <i>(JEL Q24, Q57)</i>

COORDINATED PRICING AND INVENTORY CONTROL WITH BATCH PRODUCTION AND ERLANG LEADTIMES

This paper addresses a joint pricing and inventory control problem for a batch production system with random leadtimes. Assume that demand arrives according to a Poisson process with a price-dependent arrival rate. Each replenishment order contains a single batch of a fixed lot size. The replenishment leadtime follows an Erlang distribution, with the number of completed phases recording the delivery state of outstanding orders. The objective is to determine an optimal inventory-pricing policy that maximizes total expected discounted profit or long-run average profit. We first show that when there is at most one order outstanding at any point in time and that excess demand is lost, the optimal reorder policy can be characterized by a critical stock level and the optimal pricing decision is decreasing in the inventory level and delivery state. We then extend the analysis to mixed-Erlang leadtime distribution which can be used to approximate any random leadtime to any degree of accuracy. We further extend the analysis to allowing three outstanding orders where the optimal reorder point becomes state-dependent: the closer an outstanding order is to its arrival or the more orders are outstanding, the lower selling price is charged and the lower reorder point is chosen. Finally, we address the backlog case and show that the monotone pricing structure may not be true when the optimal reorder point is negative.

Profit maximization in flexible serial queueing networks

We analyze the tradeoff between efficiency and service quality in tandem systems with flexible servers and finite buffers. We reward efficiency by assuming that a revenue is earned each time a job is completed, and penalize poor service quality by incorporating positive holding costs. We study the dynamic assignment of servers to tasks with the objective of maximizing the long-run average profit. For systems of arbitrary size, structured service rates, and linear or nonlinear holding costs, we determine the server assignment policy that maximizes the profit. For systems with two stations, two servers with arbitrary service rates, and linear holding costs, we show that the optimal server assignment policy is of threshold type and determine the value of this threshold as a function of the revenue and holding cost. The threshold can be interpreted as the best possible buffer size, and hence our results prove the equivalence of addressing service quality via a holding cost and via limiting the buffer size. Furthermore, we identify the optimal buffer size when each buffer space comes at a cost. We provide numerical results that suggest that the optimal policy also has a threshold structure for nonlinear holding costs. Finally, for larger systems with arbitrary service rates, we propose effective server assignment heuristics.

Complexity Analysis of a Master-Slave Oligopoly Model and Chaos Control

We establish a master-slave oligopoly game model with an upstream monopoly whose output is considered and two downstream oligopolies whose prices are considered. The existence and the local stable region of the Nash equilibrium point are investigated. The complex dynamic properties, such as bifurcation and chaos, are analyzed using bifurcation diagrams, the largest Lyapunov exponent diagrams, and the strange attractor graph. We further analyze the long-run average profit of the three firms and find that they are all optimal in the stable region. In addition, delay feedback control method and limiter control method are used in nondelayed model to control chaos. Furthermore, a delayed master-slave oligopoly game model is considered, and the three firms’ profit in various conditions is analyzed. We find that suitable delayed parameters are important for eliminating chaos and maximizing the profit of the players.

Joint pricing and replenishment policies for group-buying auction

Group-buying auction has become a popular marketing strategy in the last decade. In this paper, a stochastic model is developed for an inventory system subjects to price-sensitive demand from group-buying auctions. The model discussed here takes into account the costs of inventory, transportation, dispatching and re-order as well as the penalty cost of non-successful auctions. Since a new cycle begins whenever there is a replenishment of products, the long-run average profit can be obtained by using the renewal theory. Closed form solution of the optimal replenishment quantity is derived and an optimal unit selling price is then obtained.

Entry Regulations, Product Differentiation and Determinants of Market Structure

We use a dynamic oligopoly model of entry and exit with store-type differentiation to evaluate how entry regulations affect profitability and market structure in retail. Based on unique data for all retail food stores in Sweden, we find different cost structures and asymmetric competition across store types. Two additional small stores correspond to the same decrease in a small store's long-run profits as one large store. A number of counterfactual experiments that target the entry of different store types and markets with various degrees of regulation provide rich information for policymakers concerning the effect of regulations on market structure dynamics.

Does the Classic Microfinance Model Discourage Entrepreneurship Among the Poor? Experimental Evidence from India

Do the repayment requirements of the classic microfinance contract inhibit investment in high-return but illiquid business opportunities among the poor? Using a field experiment, we compare the classic contract which requires that repayment begin immediately after loan disbursement to a contract that includes a two-month grace period. The provision of a grace period increased short-run business investment and long-run profits but also default rates. The results, thus, indicate that debt contracts that require early repayment discourage illiquid risky investment and thereby limit the potential impact of microfinance on microenterprise growth and household poverty. (JEL A21, G32, I32, L25, L26, O15, O16)

The consequences of mergers on the profitability of Spanish savings banks

Mergers and acquisitions (M&A) have been frequently justified in terms of value creation or efficiency improvements. Nevertheless, the evidence is not consistent with the existence of benefits in terms of profitability or market value of the firms involved. A distinguishing feature of extant research is that it focuses on the assessment of the consequences of mergers around the time in which the operation takes place, limiting the possibility of observing a complete integration between the merged firms. In this context, the objective of this paper is to evaluate the effects of M&A on the long-run profitability of Spanish savings banks.

The Triple Bottom Line Effect on Emerging Market Companies: A Test of Corporate Social Responsibility and Firm Value Relationship

Over the last twenty years, after corporations have historically focused their reporting systems on the provision of financial information needed by managers and shareholders to assess risks and calculate returns, the global awareness of the need to assess the full spectrum of corporate value has grown dramatically. The triple bottom line or total returns on capital—economic, social, or environmental—are now tracked with increasing regularity. Prior research has revealed that a significant pressure of economic changes, an increase in interest in corporate social responsibility (CSR) in recent years, and an acknowledgement of it as an important research topic has brought a bigger and wider effort to build a comprehensive framework. Little empirical research on the effect of corporate social responsibility together with profitability on firm value is done in Southeast Asian countries. This study extends the literature that has been done mostly in western societies by proposing a further linkage between social responsibility, profitability, and firm value, which is rarely investigated in non-western societies. The study analyzed 35 Indonesian manufacturing firms that are listed in Indonesian Stock Exchange (IDX) and report their CSR as the supplement in the annual report. Statistic methods used for testing the hypothesis are T-test and multivariate regression model. The empirical results reveal that CSR has significantly influenced the firm value of Indonesian manufacturing companies. However, one striking finding in this study is the insignificant influence of two measures of profitability, i.e. ROA and ROE, over firm value of those companies have good CSR. These results explicitly show how firms in emerging countries are going to be more concerned with social sustainability and long-run profitability.