Financial performance of hidden champions: Evidence from German manufacturing firms

Abstract

Hidden champions are market leaders in niche markets and are an important part of the German Mittelstand. Although the hidden champion phenomenon has received considerable interest in practice, few academic studies on this issue exist. We especially lack evidence on the financial performance of hidden champions. Our study addresses this gap and investigates the profitability of hidden champions. In analyzing a panel dataset of 4677 German manufacturing firms, of which 617 are hidden champions, we find that hidden champions have significantly higher profitability with regard to return on assets but less so regarding return on equity. The hidden champion performance effect on return on assets is valued at 1.7 percentage points. Furthermore, the hidden champion performance effect decreases with firm size. Our paper contributes to the literature on the effect of firm strategy on firm profitability and adds to a better understanding of the hidden champion phenomenon.

Hidden champions as a determinant of regional development: An analysis of german districts

“…Consequently, our study contributes to the small and emerging stream of HC literature, which has been rather scant so far, with few scientifically published academic studies (e. g. Audretsch et al 2018Audretsch et al , 2020Johann et al 2021;Lehmann et al 2019). Our findings contribute to a better understanding of HC functionality by looking at how these firms affect several regional development dimensions.…”

“…Therefore, prices are typically above the market average, which in combination with their international expansion significantly contributes to niche market profitability. Analyzing a sample of 4,677 German manufacturing firms over a period of ten years, Johann et al (2021) for example show that HCs have a significantly higher profitability with regard to return on assets than non-HCs.…”

“…Continental market leadership or being one of the top three firms worldwide is strongly connected with a high degree of internationalization, which can be measured by, i. e., the export performance of a firm (e. g. Sullivan 1994). Since HCs strive for market leadership in global niche markets, they are characterized by above-average export rates (Fryges 2006;Johann et al 2021). Therefore, we test whether regional HC intensity is associated with regional export performance, captured by the variable export intensity.…”

“…Finally, future research is necessary to expand knowledge on the phenomenon of HCs, especially at the firm level. Although an increasing number of studies on this phenomenon exist to date (see Schenkenhofer 2020), the number of scientifically published academic studies in the field is rather limited (e. g. Audretsch et al 2018Audretsch et al , 2020Johann et al 2021;Lehmann et al 2019). Hence, further research is needed to better understand the inner workings of the HC phenomenon at the firm level as well as the external impact of this specific group of firms.…”

Breaking with the Past to Face the Future? Organizational path dependence in family businesses

“…Excellence in one area, however, carries the danger of reducing scope for autonomous strategic action (Burgelman, 2002). The success of family businesses is often rooted in exactly that strength: being leaders in niche markets (Johann, Block, & Benz, 2021). The rich past and tradition of family businesses, and the lengthy tenure of their executives (Jorissen, Laveren, Martens, & Reheul, 2005), might further make them prone to beliefs about causes and effects of strategic action that no longer hold under changed external conditions (Prahalad & Bettis, 1986).…”