Polarisation and Reversion under Competition: Profitability of Indian Firms |
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Authors: | Neng Jiang Paul Kattuman Ananya Kotia |
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Institution: | 1. Sheffield University Management School, 1 Conduit Road, Sheffield, S10 1FL, UK;2. Cambridge Judge Business School, University of Cambridge, Trumpington Street, Cambridge CB2 1AGT, UK;3. National Institute of Public Finance and Policy, Special Institutional Area, 18/2, Satsang Vihar Marg, New Delhi, Delhi 110067, India |
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Abstract: | We analyse profitability dynamics in a large emerging economy, India, over the two-and-a-half decades since economic liberalisation began in earnest. We find that the average rate at which Indian firms reverted to normal profitability increased significantly, particularly for firms earning supernormal profits. In contrast, firms earning below-normal profitability have been marked by little reversion to normal. Inducing underperforming firms to improve their profitability is of great policy importance. The pattern in profitability dynamics of Indian firms in the early years was consistent with a polarised long-run profitability distribution. The polarisation tendency was reversed in later years, but the projected long-run profitability distribution has a substantial underperforming tail. |
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Keywords: | Intensity of Competition Profitability Dynamics Reversion Volatility India Liberalisation |
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