The Causes of Profit Heterogeneity in Large Australian Firms

Melbourne Institute Working Paper No. 7/10

27 Pages Posted: 1 Jul 2010

See all articles by Andreas Stierwald

Andreas Stierwald

Melbourne Institute of Applied Economic and Social Research

Date Written: June 30, 2010

Abstract

The objective of this paper is to investigate the causes of heterogeneity in firm performance. In particular, the study decomposes unobserved heterogeneity in profitability into firm and industry effects and quantifies the relative importance of both these effects. For a sample of large Australian firms for the period 1995-2005, the estimation results indicate that almost two thirds of the heterogeneity can be explained by differences across firms, and that industry effects are of much less importance. Another result is that the level of total factor productivity, as a component of firm effects, significantly enhances profitability, but also that this relationship is not identical among firms.

Keywords: firm performance, determinants of profit, multi-level analysis, firm effects

JEL Classification: C23, D24, L25

Suggested Citation

Stierwald, Andreas, The Causes of Profit Heterogeneity in Large Australian Firms (June 30, 2010). Melbourne Institute Working Paper No. 7/10, Available at SSRN: https://ssrn.com/abstract=1632803 or http://dx.doi.org/10.2139/ssrn.1632803

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