Profitability or Longevity? Cross-Country Variations in Corporate Performance

Ryoichi Arai and Shinichi Hirota ()
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Ryoichi Arai: International Christian University, 3-10-2, Osawa, Mitaka-shi, Tokyo 181-8585, Japan
Shinichi Hirota: School of Commerce, Waseda University, 1-6-1 Nishiwaseda, Shinjuku, Tokyo 169-8050, Japan

Sustainability, 2023, vol. 15, issue 10, 1-29

Abstract: The previous literature shows that firms’ purposes and behaviors vary across countries, but few studies have empirically examined whether firm performance varies across countries. This study compares the performance of the world’s largest corporations across 47 countries. Using the data for firms listed in the Fortune Global 500 from 1973 to 2020, we explore whether there are cross-country variations in two dimensions of corporate performance: profitability and longevity . We find significant variations in both profitability and longevity across countries. We also observe that firms in some countries are highly (less) profitable but less (more) likely to survive for a long time. We regress profitability and longevity on country-level institutional factors: financial systems, laws, and national cultures. We find that (i) a market-based (bank-based) financial system is positively (negatively) related to a firm’s profitability, but negatively (positively) related to its longevity; (ii) common law (civil law) is positively (negatively) related to the profitability of a firm, but negatively (positively) related to its longevity; and (iii) high individualism, low uncertainty avoidance, and low long-term orientation are positively related to profitability, but negatively related to longevity. These results suggest that a country’s formal and informal institutions significantly affect a firm’s purpose, behavior, and performance.

Keywords: corporate performance; profitability; longevity; financial system; law; national culture; corporate governance; shareholder-oriented countries; stakeholder-oriented countries; cross-country study (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
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