Heterogeneity in Firm Performance

Firm performance is of fundamental importance in economic analysis because the prosperity of an economy ultimately depends on its productivity which, in turn, depends on the success of ¿rms. The objective of this book is to improve the understanding of what drives ¿rm performance. It analyzes the causes and consequences of heterogeneity in ¿rm performance using two common indicators: productivity and prötability. The empirical investigation employs a panel dataset that comprises 1,206 large Australian ¿rms and covers the period from 1995 to 2005. The results in this book highlight the heterogeneity in ¿rm performance. The evidence suggests that there are substantial and persistent di¿erences in performance across ¿rms, in particular with respect to productivity and profitability. Prötability is predominantly determined by unique and fundamental characteristics of the ¿rm, and productivity and productivity persistence are signi¿cant factors among them. The lack of industry e¿ects suggests that heterogeneity in ¿rm performance is not necessarily related to market failure and anti-competitive behavior. There is no strong evidence that market failures are prominent in the economy.