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Profit persistence in globalizing forest industry companies

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This study analyzes profit persistence and scale economies of globalizing forest industry using panel data from 49 companies in the US, Canada, Europe and the group of emerging countries between years 19962005. Size and profitability of forest industry companies were found to be only weakly related, and there were clear geographical and period specific differences in the data. Time series-cross section unit root tests indicated that on the global scale there were no persistent firm-specific profits among the largest forest industry companies. However, there was some evidence of geographical differences as for the Canadian companies some indication of profit persistence was found, but this could not be fully confirmed as it could be also derived from this sample. The main policy implication of this study is that in the absence of profit persistence, streamlining of operations and cutting down smaller and less profitable production units will likely continue in the forest industry with investors and stock markets valuing short-term economic performance. As this will inevitably have an adverse impact on job opportunities and local livelihoods of rural communities in forestry dependent areas, examining interaction between corporate social and economic performance will become more important.
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Keywords: forest industry; panel data; persistency of profits; scale economies; unit root tests

Document Type: Research Article

Affiliations: 1: Adjunct professor, University of Toronto, Faculty of Forestry, 33 Willcocks St., Toronto, ON M5S 3B3, Canada. 2: Professor, University of Helsinki, Department of Forest Economics, P.O.Box 27, 00014 Helsinki, Finland.

Publication date: December 1, 2008

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