Sources of Firm Performance Differences in the US Food Economy

Abstract

Researchers in economics and strategy have long been interested in understanding the determinants of firm performance. We apply the relatively novel approach of hierarchical linear modelling (HLM) to a large panel of food economy firms to shed new light on the long‐standing debate about the relative importance of industry, corporate parent and business unit effects on firm profits. Our results suggest that business unit and corporate effects are more relevant than industry effects in explaining firm performance differences in the food economy. In addition, we also explore the effect of specific strategic factors on performance within each level of analysis. In particular, we find that business‐segment size, industry barriers to entry, corporate diversification, R&D intensity, capital intensity and resource availability are significant predictor variables that explain firm performance differences. Given the relatively important role of corporate effects and the positive influence of corporate strategic variables on business unit performance, our findings suggest that the environment provided by corporate parents significantly affects business unit profitability. In other words, corporate strategy does matter and thus should continue to draw attention from scholars interested in explaining profitability in the food economy.

Wine Firm’s Size and Economic Performance: Evidence from Traditional Portuguese Wine Regions

“…The findings suggest a positive relationship between firm size with return on assets (ROA) [7,12], return on equity (ROE), and return on investment (ROI) [12] and based in arguments like greater resources and market opportunities of large firms, which enables to be more efficient in the use of inputs, to benefit from economies of scale and to a stronger market power. However, other studies [13] reported a negative relation, showing that smaller firms can obtain a better financial performance.…”

“…Some studies on the agrifood sector conclude that there is a direct relation between firm size and financial performance in the food industry [e.g., 7,12]. The findings suggest a positive relationship between firm size with return on assets (ROA) [7,12], return on equity (ROE), and return on investment (ROI) [12] and based in arguments like greater resources and market opportunities of large firms, which enables to be more efficient in the use of inputs, to benefit from economies of scale and to a stronger market power.…”

“…Two theoretical alternatives approaches have been used [7] to analyze the importance of the industry and the business unit factors in the firm performance: the paradigm structure-conduct-performance (SCP) of the industrial organization [8,9], suggesting that the industry structure is the main determinant of performance differences across firms, and the business strategy [10,11], assuming that the resources and capabilities are the main determinants of differences of profitability across firms.…”

Asymmetric competition in food industry with product substitutability

“…Traill (1997) examined the effects of the globalization on the supply and the quality for food industries. Chaddad and Mondelli (2013) identified that the specific strategies of firms have effects on the firms' performance in the food industry.However, the literature related to the food security seldom takes substitutability into consideration. As we know, there exists a high degree of product substitutability in the food industry, while food producers are always asymmetric.…”

“…Traill (1997) examined the effects of the globalization on the supply and the quality for food industries. Chaddad and Mondelli (2013) identified that the specific strategies of firms have effects on the firms' performance in the food industry.…”