Profit Margins and the Business Cycle: Evidence from UK Manufacturing Firms

Stephen Machin and John van Reenen

Journal of Industrial Economics, 1993, vol. 41, issue 1, 29-50

Abstract: This paper presents some empirical models of profitability using panel data covering 709 large U.K. companies ove r the 1970s and 1980s, focusing specifically on the role of aggregate demand shocks in shaping firm-level profitability. In basic regressi ons and in quite complex econometric models, the results suggest that firm-level profit margins fell heavily during the deep manufacturing recession of the early 1980s and, as such, are consistent with model s predicting the procyclical nature of profit margins. This result hol ds across different product groups (producer goods, consumer durables a nd nondurables), though the timing of the impact of aggregate shocks appears to differ. Copyright 1993 by Blackwell Publishing Ltd.

Date: 1993
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