The Determinants of Firm Profitability in Australian Manufacturing

This study provides new evidence on the determinants of the profitability of Australian manufacturing firms by analyzing a unique firm-level data set of firm performance over the period 1984-93. The panel nature of the data permits the estimation of dynamic profitability models over the business cycle, to test both the persistence and cyclicality of firm profitability. Econometric results suggest that lagged profitability is a significant determinant of current profit margins, and that industry concentration is positively related to firm profit margins. Also, profit margins are found to be procyciical in concentrated industries but counter-cyclical in less concentrated industries.