Revenues as a proxy for profits: a cautionary note

Abstract

In the entry literature, researchers sometimes use revenues as a proxy for profits because this is the only data available. Doing so could seriously bias the results.

Notes

¹ Entry by larger establishments not tax-based in the municipality of entry could not be analysed using the available data. However, according to data collected by the Swedish Research Institute of Trade (HUI) for 1996, 88% of retail firms were tax-based in the municipality of operation that year. The numbers of course differ depending on type of business; branches of chains are most common in retail trade of shoes (but still 71% of establishments are tax-based in the municipality of operation), and least common for florists (99% individual firms). Unfortunately, we have not been able to find any similar data for Swedish wholesale trade.

² UC is a credit bureau that collects information on both firms and individuals residing in Sweden.

³ SNI refers to the Swedish standard industrial classification.

⁴ Daunfeldt et al. (2006) provides theoretical framework for the determinants of entry into Swedish retail and wholesale trade, as well as a thorough discussion of all variables included in the empirical analysis.

⁵ The full results can be found at www.hui.se, choosing research and then HUI Working Papers. The paper is listed as HUI Working Paper No 4.

⁶ SNI-code 521 represents general retail food stores, 522 represents specialized food stores, 523 represents retailing in pharmaceuticals, cosmetics and hygiene articles, 524 represents specialized retailing of other goods, for example textiles and furniture, 525 represents firms specialized in antiques, 526 represents mail order firms, and 527 represents maintenance and repair of good sold under the above categories. Turning to the wholesale categories, SNI-code 511 represents agency trade, 512 represents wholesale of, amongst others, livestock, crops, tobacco, flowers and plants, 513 represents wholesale trade of food and alcohol, 514 represents clothes, shoes, textiles and furniture, 515 concern wholesale of fuels, metal and wood, 516 represents heavy tools and building equipment, and 517 is a generic group consisting of all other types of wholesale firms.