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Churning and profitability in the U.S. Corporate Sector

Leila Davis () and Joao de Souza ()
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Leila Davis: Department of Economics, University of Massachusetts Boston
Joao de Souza: Department of Economics, University of Massachusetts Boston

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: This paper establishes that entry and exit regulate the top half of the profitability distribution in the post-1970 U.S. economy. We, first, document stability in the distribution of total profits earned on tangible, intangible, and financial capital. Whereas a narrower measure of returns on tangible capital, instead, suggests rising dispersion, it fails to capture post-1970 growth in intangible and financial assets. Second, we use quantile decompositions to show that churning – specifically, exit for cause – regulates median and top-end profitability. Thus, the process by which competition drives out unprofitable firms acts to stabilize profit rates in the U.S. economy.

Keywords: Profit rates; competition; entry and exit dynamics (search for similar items in EconPapers)
JEL-codes: B5 L1 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-bec, nep-com, nep-his, nep-hme, nep-ind and nep-isf
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