Churning and profitability in the U.S. corporate sector

Abstract

This paper establishes that entry and exit stabilize 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.

Not your average firm: A quantile regression approach to firm‐level investment in the United States

“…After assigning zero to missing debt data, the observations with negative values for plant, property, and equipment, total assets, debt, and investment in the dataset are dropped. Davis and Souza (2022) observe that the profit rates show important variation depending on the definition operationalized. Although the broad definition of the profit rate—including all assets and all income—and less broad definition of the profit rate—including only tangible capital and operating income—seem to have similar time trends at different quantiles, the firms that are in the top quantile in different definitions seem to be overlapping less and less in recent years.…”