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The Causes of Profit Heterogeneity in Large Australian Firms


  • Andreas Stierwald

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)


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.

Suggested Citation

  • Andreas Stierwald, 2010. "The Causes of Profit Heterogeneity in Large Australian Firms," Melbourne Institute Working Paper Series wp2010n07, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2010n07

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    firm performance; determinants of profit; multi-level analysis; firm effects;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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