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Market, Corporation And Business Unit Effects:What Do They Account For?

Author

Listed:
  • MATKO KOLJATIC

    (Escuela de Administración, Pontificia Universidad Católica de Chile)

  • FERNANDO LEFORT

    (Business Administration School, Pontificia Universidad Católica de Chile.)

Abstract

Using a variance decomposition analysis the empirical literature on strategic management has determined the percentages of total rates of return’s variance due to corporation, market and business-unit effects. However, we still do not know what specific characteristics of corporations and markets cause the observed persistent differences in the returns of business units. In summary, the analysis of variance puts names to our ignorance. The main purpose of this paper is to show that the variance decomposition analysis is limited in its ability to explain the determinants of business unit performance. Our results show that the relative importance of corporation, industry and business unit effects change depending upon the estimation procedure and the model specification used. In particular, we find that part of the business unit effect may, in fact, be related to industry characteristics. We also show that firm diversification and market concentration tend to improve business unit performance.

Suggested Citation

  • Matko Koljatic & Fernando Lefort, 1999. "Market, Corporation And Business Unit Effects:What Do They Account For?," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 2(1), pages 23-50.
    • Handle: RePEc:pch:abante:v:2:y:1999:i:1:p:23-50
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    File URL: http://www.abante.cl/files/ABT/Contenidos/Vol-2-N1/2%20Koljatic%20Lefort.pdf
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    References listed on IDEAS

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    1. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
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    3. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January.
    4. Schmalensee, Richard, 1985. "Do Markets Differ Much?," American Economic Review, American Economic Association, vol. 75(3), pages 341-351, June.
    5. Richard P. Rumelt, 1991. "How much does industry matter?," Strategic Management Journal, Wiley Blackwell, vol. 12(3), pages 167-185, March.
    6. Cynthia A. Montgomery & Birger Wernerfelt, 1991. "Sources of Superior Performance: Market Share Versus Industry Effects in the U.S. Brewing Industry," Management Science, INFORMS, vol. 37(8), pages 954-959, August.
    7. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-1398, November.
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    Cited by:

    1. Jorge Tarziján M, 2002. "La Ventaja Competitiva De La Empresa Revisada," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 5(1), pages 31-50.

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    More about this item

    Keywords

    Business Unit Performance; Diversification; Market Concentration;
    All these keywords.

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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