ANALYZING FIRM PERFORMANCE HETEROGENEITY: THE RELATIVE EFFECT OF BUSINESS DEFINITION

N. Houthoofd, S. Desmidt () and G. Fidalgo

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

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.

Keywords: Business definition; domain choice; electrical wholesale sector; performance differences; variance decomposition (search for similar items in EconPapers)
JEL-codes: C00 C13 C83 D21 L10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse and nep-sbm
Date: 2009-04
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Persistent link: http://EconPapers.repec.org/RePEc:rug:rugwps:09/580

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