Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2015-01-26
Number: 15-014/VII
Author-Name: Spyridon Stavropoulos
Author-Workplace-Name: University of Patras, Greece
Author-Name: Martijn J. Burger
Author-Workplace-Name: Erasmus University Rotterdam, the Netherlands; University of Patras, Greece
Author-Name: Dimitris Skuras
Author-Workplace-Name: University of Patras, Greece
Title: Data Sparseness and Variance in Accounting Profitability
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.
Classification-JEL: C18, L16, R11
Keywords: Firm profitability, variance decomposition, data sparseness, meta-analysis
File-Url: https://papers.tinbergen.nl/15014.pdf
File-Format: application/pdf
File-Size: 696859 bytes
Handle: RePEc:tin:wpaper:20150014