No abstract

Manufacture of food products and beverages excluding tobacco. Regarding to NACE Rev. 1.1 division DA15 2 Contributing 11 % of total value added the food industry occupies the second place within EU-27 manufacturing following the engine building industry in 2007. 3 According to the SME definition of the European Commission small firms are defined as having employed less than 50 persons and total assets of less than 10Mio €.

1 Industry, firm, year, and country effects on profitability in EU food processing This paper decomposes the variance in food industry return-on-assets into year, country, industry, and firm effects. Besides these main effects, we include several interactions and discuss their theoretical foundations. After determining effect significance in a nested ANOVA with a rotating pattern of effect introduction, we estimate effect magnitude using components of variance in a large sample of corporations. The results show that firm characteristics are more important than industry structure in determining food industry profitability in Europe. Main effects and interactions of year and country membership are weak, indicating that performance differentials can poorly be explained by macroeconomic and trade theory. Key words: ROA, decomposition, variance components, MBV, RBV.Running head: Industry, firm, year, and country effects on profitability JEL: L00, C22 Introduction 'There are many theories because each is based on different assumptions about the world; it is theirrelevance rather than their logic which is in dispute. ' (Cook, 1958: 16).In a perfectly competitive market, firm performance that deviates from the average should not exist in the long run. However, such deviations are not an exception to the rule but in fact the norm, especially in industries characterized by high sunk costs or other impediments to competition as the food sector seems to be. The ability of firms to 2 earn returns persistently above the norm has been widely analyzed.1 While the so-called 'market-based view', which draws heavily on Industrial Organization (IO) theory, mainly attributes such 'abnormal' profits to industry characteristics, proponents of the 'resource-based view' assume that performance differentials can be better explained by firm properties. 2 In order to resolve this debate, a series of contributions following Schmalensee's (1985) seminal paper has used components-of variance analysis (COV) and nested (i.e. hierarchical) analysis of variance (ANOVA) techniques to decompose the variation in firm profitability into firm and industry specific effects. Subsequent papers have also looked at the impact of year and, more recently, of country effects on firm profitability. While the influence of country and country-industry interactions on the variation in profitability can be explained by models developed in trade theory, the aforementioned body of literature has paid little attention to the theoretical foundations 1 (e.g. Barney 1991, Bowman and Helfat 2001, Brush, Bromiley and Hendrickx 1991, Geroski and Jaquemin 1988, Gschwandtner 2005, Goddard and Wilson 1999, Mahoney 1995, McGahan and Porter 1997, 1999, 2003, Mueller 1977, 1990, Odagiri and Maruyama 2002, Roquebert, Phillips and Westfall 1996, Rumelt 1991, Schmalensee 1985, Teece, Pesano and Shen 1997, Waring 1996, Werenfelt 1984.2 Examples for studies that support the 'market-based view' are: Caves and Porter (1977), McGahan and Porter (1999), Schmalensee (1985), Slat...

In the present study we analyze and compare profit persistence during the periods 1950-66, 1967-83 and 1984-99 in the USA. While most of the previous studies performed persistence analysis on survivors only, the present set-up allows for companies to enter and exit the analyzed sample, giving a more comprehensive depiction of the US economy during this half of the century. The results point towards a constant increase of competition after the opening of the US economy to international competition in the 1960-80s. Key determinants of profit persistence seem to be the firm's and industry size, industry growth, and more recently risk, advertising and exports.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Non-technical summaryThe present project analyses what drives profitability in the food sector and compares the results with the manufacturing industry in general but also between the European Union and the United States.One of the main findings is that competition is stronger and profitability is lower within the food sector as compared with the manufacturing sector in general. This is mainly attributable to a high market saturation and to the fierce competition between the big retail companies. While the competition profits the consumer, it puts strong bargaining pressure on the producers. Therefore, one of the main drivers of profitability and profit persistence within the food sector is firm size. Larger producers seem to be in a better bargaining position against the retail sector and this seems to be both the case in the EU and in the US.A determinant where the food sector seems to differ between the two regions is firm's growth. While the impact of firm's growth on profitability is positive in the US, it is insignificant in the EU. This may be because while growing firms have to take into consideration higher costs and this may decrease profitability.And this may explain yet another difference between the determinants of profitability in the food sector in the US and in the EU. While the impact of (long-term) debt is positive in the US, it is negative in the EU. By having easier access to debt, US firms are presumably able to better counteract this potentially negative effect of growth. Long-term debt can enable firms to make the necessary investments that help to ensure competitiveness in times of crisis. In the EU firms indebted in the long run seem to find it more difficult to cope with risk.The results have not only purely descriptive value but can also be useful when designing policies aimed at supporting food sector firms or the food sector as a whole. This is important as today firms are facing economic circumstances characterized by reduced entry barriers and possibilities to operate in previously hardly accessible foreign markets. Those developments are a consequence of intensified globalization represented by trade agreements such as the NAFTA or the formation of a single market for goods and services within the EU. However, these deregulations of borders and international trade have led to a significant intensification of competition among firms across many sectors. Pressure on the margins and competitiveness ...