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Contribution Details
| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Empirical Evidence on the Persistence of Profits in Valuation Models |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 75 |
| Date | 2018 |
| Abstract Text | Empirical observations and microeconomic theory suggest that economic profit margins tend to mean-revert under competitive forces. The present empirical study examines this phenomenon based on a global sample of more than 10,000 listed firms between 1966 and 2016. We provide further support that a firm’s economic profit converges toward a long-term profitability level by fitting the data in an autoregressive (AR1) exponential decay model. The quantification of how fast and to which extent the profit margin develops allows for valuation practitioners to model the profits in a terminal value that incorporates a firm’s expected profit cycle more realistically and explicitly. |
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