Mark-ups and competition: a comparison of the profitability of listed South African industrial companies

Stellenbosch Working Paper Series No. WP02/2015
 
Publication date: 2015
 
Author(s):
[protected email address] (Department of Economics, University of Stellenbosch)
[protected email address] (Department of Economics, University of Stellenbosch)
[protected email address] (Department of Economics, University of Stellenbosch)
[protected email address] (Department of Economics, University of Stellenbosch)
 
Abstract:

This paper tests the well-established finding in the literature that SA firms are significantly more profitable and operate in a highly concentrated market, relative to that of their foreign counterparts. In particular we question the conclusions drawn by Aghion, Braun, and Fedderke (2008) who find that South African firms enjoy profitability margins more than double that in other countries for a sample from 1980 to 2004. We test this claim empirically by using survivorship bias corrected datasets of the top 25 South African industrial firms listed on the JSE (by market capitalisation) and those in the Dow Jones Industrial Average index. We compare (for this period) the mark-ups (as measured by Aghion et al. (2008)) as proxied for by the relative profitability (as measured by Return on Equity (ROE) and Return on Invested Capital (ROIC)). We also compare a set of commonly used ratios for SA firms relative to their US, UK and Brazilian counterparts for the period 1994{2013. Our results for both data sets do not confirm the claim that South African industrial companies have enjoyed sharply higher mark-ups as approximated by the relevant rates of profitability when compared with their international counterparts.

 
JEL Classification:

L250,L100

Keywords:

competitiveness, profitability margin, return on equity, return on assets, return on invested capital, mark-ups, profit margins, gross margins

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1 March 2021
Even with the release of data showing a record high unemployment rate in 2020Q4, it turned out to be a fairly good week for the SA economy. Daily new COVID-19 infections remained well contained, while the second batch of 80 000 J&J vaccines arrived (albeit controversially with the grounded SAA being the carrier). In addition, relative to the October...

Read the full issue