Data Sparseness and Variance in Accounting Profitability

Spyridon Stavropoulos, Martijn Burger and Dimitris Skuras ()
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Spyridon Stavropoulos: University of Patras, Greece

No 15-014/VII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: A central question in strategic management is why some firms perform better than others. One approach to addressing this question empirically is to decompose the variance in firm-level profitability into firm, industry, location, and year components. Although it is well established that data sparseness in variance decomposition studies can lead to overestimating particular variance components, little attention has been paid to sample size requirements in strategic management studies that have examined the nature of differences in firm profitability. We conduct a meta-regression and variance decomposition study and conclude that the variation in the results from previous studies is driven—to a considerable extent—by the number of observations per group within a component. Based on these findings, we draw conclusions regarding the validity and reliability of previo us variance decomposition studies and provide implications for current debates in the strategic management literature.

Keywords: Firm profitability; variance decomposition; data sparseness; meta-analysis (search for similar items in EconPapers)
JEL-codes: C18 L16 R11 (search for similar items in EconPapers)
Date: 2015-01-26
New Economics Papers: this item is included in nep-acc, nep-bec and nep-eff
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20150014

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