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Determinants of firm performance: The relative importance of economic and organizational factors

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  • Gary S. Hansen
  • Birger Wernerfelt

Abstract

We decompose the inter‐firm variance in profit rates into economic and organizational components. Using a representative model from each paradigm we find that both sets of factors are significant determinants of firm performance. Further findings are that the two effects are roughly independent and that organizational factors explain about twice as much variance in profit rates as economic factors.

Suggested Citation

  • Gary S. Hansen & Birger Wernerfelt, 1989. "Determinants of firm performance: The relative importance of economic and organizational factors," Strategic Management Journal, Wiley Blackwell, vol. 10(5), pages 399-411, September.
  • Handle: RePEc:bla:stratm:v:10:y:1989:i:5:p:399-411
    DOI: 10.1002/smj.4250100502
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    5. Elvira Velarde Lopez & Zochitl Araiza Garza & Anahi Garcia Moreno, 2014. "FIRM AND ENTREPRENEUR FACTORS AND THEIR RELATIONSHIP WITH ECONOMIC SUCCESS IN SME’s IN THE CENTRAL REGION OF COAHUILA, MEXICO,FACTORES DE LA EMPRESA Y DEL EMPRESARIO Y SU RELACION CON EL EXITO ECONO," Revista Internacional Administracion & Finanzas, The Institute for Business and Finance Research, vol. 7(5), pages 11-23.
    6. Cordes, Christian & Richerson, Peter J. & McElreath, Richard & Strimling, Pontus, 2008. "A naturalistic approach to the theory of the firm: The role of cooperation and cultural evolution," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 125-139, October.
    7. Rebecca Henderson & Iain Cockburn, 1994. "Measuring Competence? Exploring Firm Effects in Pharmaceutical Research," Strategic Management Journal, Wiley Blackwell, vol. 15(S1), pages 63-84, December.
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    9. Mirkó Gáti & András Bauer, 2019. "Marketing Decision-Making in Hungarian SMEs," Tržište/Market, Faculty of Economics and Business, University of Zagreb, vol. 31(1), pages 39-59.
    10. Karim Marini Thome & Janan Joslin Medeiros & Juciara Nunes de Alcântara, 2019. "Rescuing the Industry-Based Competition to Determine the Performance of Foreign Subsidiaries in the Brazilian Host Market," Global Business Review, International Management Institute, vol. 20(1), pages 13-24, February.
    11. HERCIU Mihaela & OGREAN Claudia, 2018. "Business Sustainable Competitiveness – A Synergistic, Long-Run Approach Of A Company’S Resources And Results," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 13(3), pages 26-44, December.
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    15. Carney, Michael & Shapiro, Daniel & Estrin, Saul & Zhixiang, Liang, 2018. "National institutional systems, foreign ownership and firm performance: the case of understudied countries," LSE Research Online Documents on Economics 87042, London School of Economics and Political Science, LSE Library.
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    18. Muhannad Hisham Abu Mahfouz & Daud Ahmed Muhumed, 2020. "Linking organizational culture with financial performance: A literature review," Bussecon Review of Social Sciences (2687-2285), Bussecon International, vol. 2(1), pages 38-43, January.
    19. Mandakini Das & Nivedita Goswami, 2019. "Effect of entrepreneurial networks on small firm performance in Kamrup, a district of Assam," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 9(1), pages 1-14, December.
    20. Liu, Zuoming, 2020. "Unraveling the complex relationship between environmental and financial performance ─── A multilevel longitudinal analysis," International Journal of Production Economics, Elsevier, vol. 219(C), pages 328-340.
    21. Juan Regino Maldonado & Wen Yali & Frederick Cubbage & Patricia Regino Maldonado, 2017. "Forest Resources in the Performance of Mexican Community Forest Enterprises in a Vertical Integration System," International Journal of Sciences, Office ijSciences, vol. 6(09), pages 1-15, September.
    22. Gaganis, Chrysovalantis & Pasiouras, Fotios & Voulgari, Fotini, 2019. "Culture, business environment and SMEs' profitability: Evidence from European Countries," Economic Modelling, Elsevier, vol. 78(C), pages 275-292.

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