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Analyzing Firm Performance Heterogeneity: The Relative Effect Of Business Definition

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  • N. HOUTHOOFD
  • S. DESMIDT

    ()

  • G. FIDALGO

Abstract

An ongoing discussion in strategic management concerns the relative impact of specific strategic decisions on firm performance. In this tradition, this research analyzes the relative impact of business domain choices on firm performance. More specific, the paper at hand (a) discusses a method to assess the relative impact of firm and business definition effects on firm performance within a specific industry, and (b) demonstrates the value of this method by measuring the effect of business definition on performance within the context of a specific SME-dominated industry, namely the Belgian electrical whole sale sector. The results indicate that firm effects explain most of the variance in four performance variables but that the impact of business definition on performance could be underestimated. It turns out, according to our findings, that business membership (and thus differences in business definition) explains about 8 percent of the variance in performance between firms within the examined industry. Consequently, managers should carefully monitor and examine the business domain they are in as it directly related with the firm’s level of performance.

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File URL: http://www.feb.ugent.be/nl/Ondz/wp/Papers/wp_09_580.pdf
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Bibliographic Info

Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 09/580.

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Length: 31 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:rug:rugwps:09/580

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Keywords: Business definition; domain choice; electrical wholesale sector; performance differences; variance decomposition;

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  1. Gabriel Hawawini & Venkat Subramanian & Paul Verdin, 2003. "Is performance driven by industry or firm-specific factors? A new look at the evidence," ULB Institutional Repository 2013/14188, ULB -- Universite Libre de Bruxelles.
  2. Eduardo González-Fidalgo & Juan Ventura-Victoria, 2002. "How Much Do Strategic Groups Matter?," Review of Industrial Organization, Springer, vol. 21(1), pages 55-71, August.
  3. Schmalensee, Richard., 1984. "Do markets differ much?," Working papers 1531-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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