WHAT CREATES ABNORMAL PROFITS?

In this paper, we re‐examine the debate regarding the determinants of persistent abnormal profits. Abnormal profits are estimated using data on tangible and intangible capital for 2689 Australian firms over a 17‐year period. The determinants of abnormal profits are then estimated using variables collated from accounting and survey data on innovation and management practices. We find that market share, use of lead‐time strategies, and industry concentration all affect abnormal profits.