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REPLY

REPLY MARCH 1976 REPLY SIDNEY R. FINKEL AND DONALD L. TUTTLE· OUR ARTICLE, "Determinants of the Aggregate Profits Margin," [l] was an extension of a simple linear regression estimate of the aggregate profit margin, as stated in Latane-Tuttle [2]. That equation used capacity utilization as the explanatory variable. It is recognized that simple linear regression is not satisfactory, hence the logical step of a multiple linear stepwise regression to test the ability of additional explanatory variables deduced from standard theory. The Finkel-Tuttle results found that in addition to the capacity utilization variable, the trade surplus, GNP deflator and unit labor cost variables were significant in explaining variation in the profit margin. H. Peter Gray's complaint about the Finkel-Tuttle results is with the trade surplus variable. He argues that one should not expect the sign of the trade surplus variable to be negative. To examine the effect of the trade surplus variable one must look at both exports and imports. The case for exports is clear. They compete in a world market far more competitive than national markets; and other things equal, transportation costs should result in lower margins. Gray accepts our citation of lower income elasticities saying "This trend, http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

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References (1)

Publisher
Wiley
Copyright
1976 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1976.tb03210.x
Publisher site
See Article on Publisher Site

Abstract

MARCH 1976 REPLY SIDNEY R. FINKEL AND DONALD L. TUTTLE· OUR ARTICLE, "Determinants of the Aggregate Profits Margin," [l] was an extension of a simple linear regression estimate of the aggregate profit margin, as stated in Latane-Tuttle [2]. That equation used capacity utilization as the explanatory variable. It is recognized that simple linear regression is not satisfactory, hence the logical step of a multiple linear stepwise regression to test the ability of additional explanatory variables deduced from standard theory. The Finkel-Tuttle results found that in addition to the capacity utilization variable, the trade surplus, GNP deflator and unit labor cost variables were significant in explaining variation in the profit margin. H. Peter Gray's complaint about the Finkel-Tuttle results is with the trade surplus variable. He argues that one should not expect the sign of the trade surplus variable to be negative. To examine the effect of the trade surplus variable one must look at both exports and imports. The case for exports is clear. They compete in a world market far more competitive than national markets; and other things equal, transportation costs should result in lower margins. Gray accepts our citation of lower income elasticities saying "This trend,

Journal

The Journal of Finance – Wiley

Published: Mar 1, 1976

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