China's WTO Accession and Long-Term Profitability of Chinese Firms

As emerging economies integrate their markets with the rest of the world, competition-driven changes in profitability are increasingly affected by shocks of various types from the business environment. We examine the dynamics of profitability distributions under such conditions using China's WT...

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Bibliographic Details
Published in:International journal of the economics of business 2012-02, Vol.19 (1), p.53-73
Main Authors: Jiang, Neng, Kattuman, Paul A.
Format: Article
Language:English
Subjects:
China
Comparative analysis
Competition
Convergence
Enterprises
Profit
Profitability
Studies
Trade liberalization
Volatility
World Trade Organization
WTO Accession
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Summary:As emerging economies integrate their markets with the rest of the world, competition-driven changes in profitability are increasingly affected by shocks of various types from the business environment. We examine the dynamics of profitability distributions under such conditions using China's WTO accession as a natural experiment to carry out before and after comparisons. Our results suggest that after WTO accession, the long-run (ergodic) distribution of conditional profitability rates of Chinese firms has become more dispersed. Due to the large proportion of firms at the poor performance end, this suggests that the financial stability of the Chinese economy will be endangered if the business environment were to deteriorate. There is an urgent need to reduce the widening span of the distribution of profitability at the lower end by accelerating the restructuring of Chinese companies.
ISSN:1357-1516
1466-1829
DOI:10.1080/13571516.2012.642638