MEAN-REVERSION OF NET PROFITABILITY AMONG POLISH PUBLIC COMPANIES

Jacek Welc

Accounting & Taxation, 2011, vol. 3, issue 2, 53-64

Abstract: Abundant research shows that the feature of corporate financial results is the long-term reversion toward the levels average for the whole economy. In the case of earnings this means that companies which in a given year show above-average profitability in the following periods express the tendency to show decreasing profitability and companies which in a given year show below-average profitability in the following periods express the tendency to show increasing profitability. However, the research related to the existence of this phenomenon in the case of emerging economies is scarce so far. Therefore, we explore the reversion toward the mean of the net profitability of companies listed on the Warsaw Stock Exchange in the period of 2000-2009 years. We tested the hypothesis that the companies with aboveaverage / below-average net profitability in any year tend to experience the significant decrease / increase of this relative profitability in the following years. The research confirmed the strong tendency of net profitability to revert toward the economy-wide mean. However, according to our estimates, the process of total reversion to the mean takes about 8-9 years in the case of Polish public companies’ netprofitability.

Keywords: mean-reversion of earnings; corporate profitability; forecasting earnings (search for similar items in EconPapers)
JEL-codes: G30 M41 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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