This study investigates the causes of heterogeneity in firm profitability using a three-level model that nests firms within industries. For a sample of large Australian firms the evidence suggests that firm average profitability significantly varies at the firm and industry level. Almost two thirds of the dispersion can be explained by differences between firms, industry effects are of much smaller magnitude. In particular, the analysis reveals that the level of total factor productivity has a positive and significant impact on firm performance. However, this relationship is not homogenous among firms but depends on productivity persistence and firm size.
Seminar, speech or other presentation
Paper presented at the Faculty of Economics and Management Research Center Colloquium, Otto von Guericke University of Magdeburg, Magdeburg, Saxony-Anhalt, Germany, 13 May 2009