Melbourne Institute Working Paper Series Database (1984 - 2010)

Melbourne Institute Working Paper No. 07/2010

The Causes of Profit Heterogeneity in Large Australian Firms

by

Andreas Stierwald

Date: June 2010

Abstract: 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.

 

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