(back to Industry & Firm Effects)

Core Readings

The key questions in this literature relate to the relative importance of industry, corporate, business-unit and year effects on the accounting profitability of firms. The research has moved toward covering firms in areas of the world other than the United States. The methodological challenges relate mainly to the proper interpretation of the effects given the fact that they are mutually determined. The most fruitful areas for further research include (a) identifying persistent, sustainable fixed effects, (b) expanding geographic coverage, (c) identifying the drivers of the effects, (d) evaluating whether relationships arise in performance at different levels of analysis, i.e., whether good industries tend not to host high-performing corporations, etc. and (e) interpreting the implications for public and business policies.

  1. Schmalensee, R. (1985). Do markets differ much? American Economic Review, 75: 341-351.
  2. Rumelt, R. (1991). How much does industry matter? Strategic Management Journal, 12, pp. 167-185.
  3. McGahan, A.M. & Porter, M.E. (1997). How much does industry matter, really? Strategic Management Journal, 18 (summer special issue): 15-30.
  4. McGahan, A.M. & Porter, M.E. (2002). What do we know about variance in accounting profitability? Management Science, 48(7): 834-851.
  5. Ruefli, T.W. & Wiggins, R.R. (2003). Industry, corporate, and segment effects and business performance: A non-parametric approach. Strategic Management Journal, 24: 861–879.
  6. McGahan, A.M. & Porter, M.E. (2005). Comment On ‘Industry, Corporate And Business-Segment Effects And Business Performance: A Non-Parametric Approach’ By Ruefli And Wiggins. Strategic Management Journal, 26(9): 873-880.
  7. Waring, GF (1996), “Industry Differences in the Persistence of Firm-Specific Returns,” American Economic Review 86, pp. 1253-65. DOCTORAL/NEAR-DOCTORAL PAPER.

Secondary Readings
The first group of readings listed in this section deal with methodological and interpretation issues related to the sizes of industry and firm effects. The results highlight important relationships between the effects at different levels.

  1. Debate at DRUID in 2005 on the relative importance of industry and firm effects on performance between Anita McGahan, Sid Winter, Janet Bercovitz and Alfonso Gambardella: http://www.druid.dk/streaming/ds2005/6.html
  2. Hansen, G. & Wernerfelt, B. (1989). Determinants of Firm Performance: The Relative Importance of Economic and Organizational Factors. Strategic Management Journal, 10(5): 399-411.
  3. Roquebert, J.A., Phillips, R.L., & Westfall, P.A. (1996). Markets Versus Management: What ‘Drives’ Profitability? Strategic Management Journal, 17: 653-664.
  4. Brush, T.H., & Bromiley, P. (1997). What does a small corporate effect mean? A variance components simulation of corporate and business effects. Strategic Management Journal, 18: 825-835.
  5. McGahan, A.M. (1999a), “The Performance of U.S. Corporations: 1981-1994,” Journal of Industrial Economics 47:4 (December), pp. 373-398.
  6. McGahan, A.M. (1999b), “Competition, Strategy, and Business Performance: 1981-1997,” California Management Review 41:3 (Spring), pp. 74-101.
  7. Brush, T.H., Bromiley, P., & Hendrickx, M. (1999). The relative influence of industry and corporation on business segment performance: An alternative estimate. Strategic Management Journal, 20(6): 519-547.

The second group of studies listed here deals principally with corporate-parent effects as distinct from business-unit effects: why they arise and their relationships to decisions made by the CEO and constraints placed by the industry structure. The most recent of these studies also considers geographic diversification by multinational enterprises.

  1. Chang, S.-J. & Singh, H. (2000). Corporate and industry effects on business unit competitive position. Strategic Management Journal, 21(7): 739-752.
  2. Bowman, E.H. & Helfat, C.E. (2001). Does corporate strategy matter? Strategic Management Journal, 22(1): 1-23
  3. Khanna, T. & Rivkin, J. (2001). Estimating the performance effects of business groups in emerging markets. Strategic Management Journal, 22(1): 45-74.
  4. Ruefli, T.W. & Wiggins, R.R. (2005). Response to McGahan and Porter's commentary on ‘Industry, corporate and business-segment effects and business performance: a non-parametric approach’. Strategic Management Journal, 26(9): 881-886.
  5. Hough, JR (2006), “Business segment performance redux: a multilevel approach,” Strategic Management Journal, Vol. 27: 1, pp. 45-61. DOCTORAL/NEAR-DOCTORAL PAPER
  6. Makino, S, I Isobe and C Chan (2004), “Does Country Matter?,” Strategic Management Journal 25:10, October, pp 1027-1043.
  7. McGahan, A and R Victer (2009), “How Much Does Home Country Matter to Corporate Profitability?,” Journal of International Business Studies (forthcoming).

The third group of secondary readings deals with a highly related subject: the persistence and sustainability of performance. The early work in this line concentrates on the persistence of firm performance in an aggregate sense. Later studies consider differences in persistence in industry, corporate-parent and business-unit effects.

  1. Ghemawat, P (1991), Commitment: The Dynamic of Strategy (Free Press)
  2. Mueller, DC (1986), Profits in the Long Run (Cambridge University Press)
  3. McGahan, A.M. & Porter, M.E. (1999). The Persistence of Shocks to Profitability. Review of Economics and Statistics, 81(1): 143–153.
  4. Furman, J L & McGahan, A M (2002), “Turnarounds,” Managerial and Decision Economics 23:4-5 (June-August), pp. 283-300.
  5. McGahan, A M & Porter, M E (2003), “The Emergence and Sustainability of Abnormal Profits,”Strategic Organization 1:1 (February), pp. 79-108.

A fourth group deals with the interactions between industry and firm influences in the early phases of market development, principally as detailed case studies, with an emphasis on how individual entrepreneurship generates industry effects:

  1. Feldman, M. P. and N. Lowe (2008) "Consensus from Controversy: Cambridge's Biosafety Ordinance and the Anchoring of the Biotech Industry." European Planning Studies, 3(16): 395.
  2. Klepper, S. (2008), “Silicon Valley – A Chip Off the Old Detroit Block,” manuscript.
  3. Kaplan, S & Murray, F (2009), Entrepreneurship and the construction of value in bio-technology. Research in the Sociology of Organizations, forthcoming.
  4. Baum, J A C & McGahan, A (2009), Outsourcing War: Private Military Companies and Command-and-Control Capabilities after the Cold War, manuscript.

Thanks to Rich Makadok of Emory University for providing me with his doctoral seminar reading list, which served as the basis for this list **