The causes of firm performance variation in the Czech food processing industry in the context of the outlier effect

Purpose - The purpose of this paper is to analyse to what extent industry, year and firm effects influence the profitability of the firms operating in the Czech food processing industry. The authors’ interest is also to investigate whether the profitability of a few firms (regarded as outliers) is able to influence the relative importance of year, firm and industry effects and to find out the relative importance of these effects for the majority of the firms. Design/methodology/approach - The effects are tested using the fixed effects regression models on the unbalanced panel dataset which consists of 10,509 observations for 1,804 enterprises across the ten food sectors over the period 2003-2014. To ensure the consistency of the results, the authors use the three different measures of profitability: return on assets, return on equity and price-cost margin. Findings - The results suggest that, on average, industry and year effects have little impact on firm profitability variance, and firm-specific effects dominate when seeking to explain firm profitability variance. To the best of the authors’ knowledge, the obtained results are supported by most of the previously published studies. Practical implications - Based on the findings, the authors encourage future researchers to add, as explanatory factors, governmental policies and to test their impact on firm profitability. Originality/value - The study helps to fill in the research gap in the field of agribusiness, as, to the best of the authors’ knowledge, no study has been conducted yet in the Czech agribusiness environment. Considering the approach distinguishing the “average” and dominant firms in the sectors, they aim at a methodological contribution to this field of research dealing with firm profitability variation.