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Industry effects and firm effects: No effect is an island

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  • Arend, Richard J.

Abstract

At the heart of business research is the identification and prioritization of the factors that create competitive advantage. Previous studies that decompose observed firm performance into industry and other effects have not considered the higher moments of the performance distribution (i.e., the excess kurtosis), nor estimated the correct null hypothesis level of those effects (i.e., of the industry effect). We address these issues to find that: (1) the industry effect impact on firm performance is likely overstated; and, (2) the interaction between the calculated component firm and industry effects is likely one that includes synergistic effects (i.e., the standard additive model of decomposition is likely mis-specified). We offer a new model, test it, and then discuss the resulting implications.

Suggested Citation

  • Arend, Richard J., 2009. "Industry effects and firm effects: No effect is an island," Journal of Business Research, Elsevier, vol. 62(6), pages 651-659, June.
    • Handle: RePEc:eee:jbrese:v:62:y:2009:i:6:p:651-659
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    References listed on IDEAS

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    Cited by:

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    5. Jean-Philippe Timsit & Annick Castiaux, 2011. "If Entry Strategy and Money go Together, What is the Right Side of the Coin?," Papers 1104.0777, arXiv.org.
    6. Vicente López-López & Susana Iglesias-Antelo & Esteban Fernández, 2020. "Is Sustainable Performance Explained by Firm Effect in Small Business?," Sustainability, MDPI, vol. 12(23), pages 1-13, December.
    7. Harada, Tsutomu & Hiramine, Yoshiki, 2021. "The Determinants of Competitive Advantage: Capability vs. Industry Structure," TDB-CAREE Discussion Paper Series E-2021-06, Teikoku Databank Center for Advanced Empirical Research on Enterprise and Economy, Graduate School of Economics, Hitotsubashi University.
    8. Patel, Pankaj C. & João Guedes, Maria & Pagano, Michael S. & Olson, Gerard T., 2020. "Industry profitability matters: The value of sustainable growth rate and distance from bankruptcy as enablers of venture survival," Journal of Business Research, Elsevier, vol. 114(C), pages 80-92.
    9. Leischnig, Alexander & Kasper-Brauer, Kati, 2016. "How to sell in diverse markets? A two-level approach to industry factors and selling factors for explaining firm profitability," Journal of Business Research, Elsevier, vol. 69(4), pages 1307-1313.

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