A research for the competitive environment hypothesis in the short-run for the Turkish manufacturing industry
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The competitive environment hypothesis is one of the basic ideas in mainstream economic theory. It states that the competitive process eliminates all economic profits and losses in the long-run so profits do not persist. This article studies the competitive environment hypothesis of 125 Istanbul Stock Exchange (ISE) quoted manufacturing firms that survived during the period of 2009:1-2010:4, which can be considered as the short-run. Net income after tax to total assets (return on assets [ROA]) and net income after tax to total equity (return on equity [ROE]) are both used as profit measures. Starting with Levin et al. and Im et al.'s panel unit root tests, pooled Ordinary Least Squares (OLS), panel fixed effects and cross-sectional analysis are employed. The results indicate that competitive environment hypothesis is viable and profits do not persist in the short-run.