Skip to main content
SpringerLink
Log in

A longitudinal analysis of the impact of firm resources and industry characteristics on firm-specific profitability

  • Original Paper
  • Published:
Journal of Management & Governance Aims and scope Submit manuscript

Abstract

Using a dynamic heterogeneous panel data model, we examine the relationship between firm-specific resources (corporate management capabilities, employee value-added and technological competence) and firm-specific profitability and the potential moderating effects of industry characteristics on this relationship. We find that firm-specific resources enhance both accounting-based measures (return on assets and return on sales) and market-based measure (Tobin’s q) of firm-specific performance. Moreover, industry characteristics moderate the relationship between firm-specific resources and firm-specific profitability. Managerial implications are discussed.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. This is also consistent with the Chicago school of economics that views industry structure as the outcome of industry competition that is based the relative strengths of its participants (e.g., Demsetz 1973). The S-C-P paradigm, however, views industry concentration as a condition that is conducive to collusion and monopoly rent (Bain 1956). A theoretical model that Makadok (2004) recently developed suggests that collusion can actually hurt firms that possess significantly superior resources to those of their competitors in the industry. If industry concentration is taken as an indicator of collusion, then his model would suggest that concentration negatively conditions the performance impact of firm resources in disagreement with our proposition. The question, then, is whether concentration reflects primarily the outcome of competition (as envisaged by the Schumpeterian and Chicago schools of IO economic) or the ease and likelihood of collusion (as envisaged by the S-C-P paradigm).

  2. Higher employee productivity can result from either of three conditions: (i) more intensive use of other production factors than labor such as capital; (ii) high employee skills that are not specific to the firm; (iii) high employee skills that are substantially specific to the firm and thus exhibit positive interactions to create value. Theoretically, only higher employee productivity under condition (iii), which falls under rubric of the architectural competence, can be expected to yield rent for the firm. Under condition (i), the economic gain from the higher employee productivity must be used to pay for the services of the more intensively used other production factors. Under condition (ii), the employees are expected to reap the economic benefit from their higher productivity because they can easily threaten to leave the firm and get the market value of their skills elsewhere. We thank an anonymous referee whose comment helped us clarify our thinking about this question.

  3. We try to control for the effects of all commonly included variables in empirical studies of firm performance in order to be conservative in testing the effects of the normalized resource variables. It is worth noting that Technological Competence is measured as the normalized deviation of firm R&D intensity from industry average. So, the inclusion of non-normalized firm R&D intensity in the model as a control variable allows us to test whether the normalized resource measure captures anything beyond the non-normalized control variable. We also ran our analyses without the non-normalized firm R&D intensity variable, and the results remain qualitatively the same.

  4. We thank an anonymous reviewer for suggesting that we estimate the simple slopes or conditional coefficients of the resource variables at the various levels of industry growth and change in industry concentration to fully explore the impact of the main effects of the resource variables of firm-specific profitability.

  5. We thank an anonymous reviewer for suggesting that we plot the interaction effects and explore their implications. To create the plots, we followed the procedure suggested by Aiken and West (1991). We constrained all variables except Relative Employee Value-Added (Models 4a and 4c), and Corporate Management Capabilities and Relative Employee Value-Added (Model 4b) in Table 2 to their mean values. Corporate Management Capabilities and Relative Employee Value-Added then took the values of one standard deviation below the mean (low), the mean (medium), and one standard deviation above the mean (high) at different levels (one standard deviation below the mean, the mean, and one standard deviation above the mean) of Industry Growth and Change in Industry Concentration. Since the plots assume the other variables to be constant, the value of the dependent variable is meaningful only in a relative sense.

  6. We thank an anonymous reviewer for suggesting that we estimate the points at which the simple slopes cross one another.

  7. We thank an anonymous reviewer whose comment helped us to sharpen this point.

References

  • Aaker, D. A. (1989). Managing assets and skills: A key to sustainable competitive advantage. California Management Review, 31, 91–106.

    Google Scholar 

  • Acquaah, M. (2003). Organizational competence and firm-specific Tobin’s q: The moderating role of corporate reputation. Strategic Organization, 1, 383–411.

    Article  Google Scholar 

  • Aiken, L. S., & West, S. G. (1991). Multiple regression: Testing and interpreting interactions. Thousand Oaks, CA: Sage Publications.

    Google Scholar 

  • Amable, B., & Verspagen, B. (1995). The role of technology in market share dynamics. Applied Economics, 27, 197–204.

    Article  Google Scholar 

  • Audretsch, D. B., Bozeman, B., Combs, K. L., Feldman, M., Link, A. N., Siegel, D. S., Stephan, P., Tassey, G., & Wessner, C. (2002). The economics of science and technology. Journal of Technology Transfer, 27, 155–203.

    Article  Google Scholar 

  • Austin, D. (1993). An event study approach to measuring innovative output: The case of biotechnology. American Economic Review, 83, 253–258.

    Google Scholar 

  • Bain, J. S. (1956). Barriers to new competition. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Baltagi, B. H. (1995). Econometric analysis of panel data. Chichester, UK: John Wiley & Sons.

    Google Scholar 

  • Barney, J. B. (1986). Strategic factor markets: Expectations, luck and buissness strategy. Management Science, 32, 1512–1514.

    Google Scholar 

  • Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120.

    Article  Google Scholar 

  • Barney, J. B. (2001). Gaining and sustaining competitive advantage (2nd ed.). Upper Saddle River, NJ: Prentice Hall.

    Google Scholar 

  • Ben-Zion, U. (1984). The R&D and investment decision and its relationship to the firm’s market value: Some preliminary results. In Z. Griliches (Ed.), R&D, patents, and profitability. Chicago: University of Chicago.

    Google Scholar 

  • Bharadwaj, A., Bharadwaj, S. G., & Konsynski, B. R. (1999). Information technology effects on firm performance as measured by Tobin’s q. Management Science, 45, 1008–1024.

    Article  Google Scholar 

  • Blundell, R., Griffith, R., & Van Reenen J. (1999). Market share, market value, and innovation in a panel of British manufacturing firms. Review of Economic Studies, 66, 529–554.

    Article  Google Scholar 

  • Bowen, H. P., & Wiersema, M. F. (1999). Matching method to paradigm in strategy research: Limitations of cross-sectional analysis and some methodological alternatives. Strategic Management Journal, 20, 625–636.

    Article  Google Scholar 

  • Bowman E., & Helfat, C. E. (2001). Does corporate strategy matter? Strategic Management Journal, 22, 1–23.

    Article  Google Scholar 

  • Breschi, S., Malerba, F., & Orsenigo, L. (2000). Technological regimes and schumpeterian patterns of innovation. Economic Journal, 110, 338–410.

    Article  Google Scholar 

  • Brown, B. (1998). Do stock market investors reward companies with reputations for social performance? Corporate Reputation Review, 1, 271–280.

    Article  Google Scholar 

  • Brown, B., & Perry, S. (1994). Removing the financial performance halo form fortune’s “most admired” companies. Academy of Management Journal, 37, 1347–1359.

    Article  Google Scholar 

  • Brush, T. H., Bromiley, P., & Hendrickx, M. (1999). The relative influence of industry and corporation on business segment performance: An alternative estimate. Strategic Management Journal, 20, 519–547.

    Article  Google Scholar 

  • Castanias, R. P., & Helfat, C. E. (1991). Managerial resources and rent. Journal of Management, 17, 155–171.

    Article  Google Scholar 

  • Chen, M.-J., Farh, J.-L., & MacMillan, I. (1993). An exploration of expertness of outside informants. Academy of Management Journal, 36, 1614–1632.

    Article  Google Scholar 

  • Chi, T. (1994). Trading in strategic resources: Necessary conditions, transactions cost problems, and choice of exchange structure. Strategic Management Journal, 15, 271–290.

    Article  Google Scholar 

  • Chung, K. H., & Pruitt, S. W. (1994). A simple approximation of Tobin’s q. Financial Management, 23, 70–74.

    Article  Google Scholar 

  • Cockburn, I., & Griliches, Z. (1988). Industry effects and appropriability measures in the stock market’s valuation of R&D and patents. American Economic Review, 78, 419–423.

    Google Scholar 

  • Collis, D. J., & Montgomery, C. A. (1995). Competing on resources: Strategy in the 1990’s. Harvard Business Review, 73, 118–128.

    Google Scholar 

  • Conner, K. R. (1991). A historical comparison of resource-based theory and five schools of thought within industrial organization economics. Do we have a theory of the firm? Journal of Management, 17, 121–154.

    Article  Google Scholar 

  • Connolly, R. A., Hirsch, B. T., & Hirschey, M. (1986). Union rent seeking, intangible capital, and market value of the firm. Review of Economics & Statistics, 68, 567–577.

    Article  Google Scholar 

  • Davies, R., & Duhaime, I. M. (1992). Diversification, vertical integration and industry analysis: New perspectives and measurements. Strategic Management Journal, 13, 511–524.

    Article  Google Scholar 

  • Davis, S. W., & Geroski, P. A. (1997). Changes in concentration, turbulence, and the dynamics of market shares. Review of Economics and Statistics, 79, 383–391.

    Article  Google Scholar 

  • Demsetz, H. (1973). Industry structure, market rivalry and public policy. Journal of Law and Economics, 16, 1–9.

    Article  Google Scholar 

  • Dess, G., & Beard, D. (1984). Dimensions of organizational task environments. Administrative Science Quarterly, 29, 52–73.

    Article  Google Scholar 

  • Fagerberg, J. (1988). International competitiveness. Economic Journal, 98, 355–374.

    Article  Google Scholar 

  • Ferrier, W. J., Smith, K. G., & Grimm, C. M. (1999). The role of competitor action in market share erosion and industry dethronement: A study of industry leaders and challengers. Academy of Management Journal, 42, 372–388.

    Article  Google Scholar 

  • Flanagan, D. J., & O’Shaughnessy, K. C. (2005). The effect of layoffs on firm reputation. Journal of Management, 31, 445–463.

    Article  Google Scholar 

  • Foil, C. M. (1991). Managing culture as a competitive resource: An identity-based view of sustainable competitive advantage. Journal of Management, 17, 191–211.

    Article  Google Scholar 

  • Fombrun, C., & Shanley, M. (1990). What’s in a name? Reputation building and corporate strategy. Academy of Management Journal, 33, 233–258.

    Article  Google Scholar 

  • Fryxell, L., & Wang, J. (1994). The fortune corporate reputation index: Reputation for what? Journal of Management, 20, 1–14.

    Article  Google Scholar 

  • Geroski, P. A. (1990). Innovation, technological opportunity, and market structure. Oxford Economic Papers, 42, 586–602.

    Google Scholar 

  • Grant, R. E. (1996). Towards a Knowledge-based view of theory of the firm. Strategic Management Journal, 17(Winter Special Issues), 109–122.

    Google Scholar 

  • Grant, R. M. (2005). Contemporary strategy analysis (5th ed.). Oxford, UK: Blackwell Publishing Ltd.

    Google Scholar 

  • Greene, W. H. (2000). Econometric analysis (4th ed.). Upper Saddle River, NJ: Prentice Hall.

    Google Scholar 

  • Godfrey, P. C., & Hill, C. W. L. (1995). The problem of unobservables in strategic management research. Strategic Management Journal, 16, 519–533.

    Article  Google Scholar 

  • Gujarati, D. N. (2003). Basic econometrics (5th ed.). New York: McGraw Hill Companies.

  • Hall, B. H. (1993). The stock market’s valuation of R&D investment during the 1980s. American Economic Review, 83, 259–264.

    Google Scholar 

  • Haltiwanger, J. C., Lane, J. I., & Spletzer, J. R. (1999). Productivity differences across employers: The roles of employer size, age, and human capital. American Economic Review, 89, 94–98.

    Article  Google Scholar 

  • Hammond, S. A., & Slocum, J. W. (1996). The impact of prior firm performance on subsequent corporate reputation. Journal of Business Ethics, 15, 159–165.

    Article  Google Scholar 

  • Hausman, J. A. (1978). Specification tests in econometrics. Econometrica, 46, 1251–1271.

    Article  Google Scholar 

  • Helfat, C. (1994). Firm-specificity in corporate applied R&D. Organization Science, 5, 173–184.

    Google Scholar 

  • Helfat, C. (1997). Know-how and asset complementarity and dynamic capabilities: The case of R&D. Strategic Management Journal, 18, 339–360.

    Article  Google Scholar 

  • Henderson, R., & Cockburn, I. (1994). Measuring competence: Exploring firm effects in pharmaceutical research. Strategic Management Journal, 15, 63–84 (Winter Special Issue).

    Article  Google Scholar 

  • Henderson, R., & Cockburn, I. (1996). Scale, scope, and spillovers: The determinants of research productivity in drug discovery. RAND Journal of Economics, 27, 32–59.

    Article  Google Scholar 

  • Hirsch, B. T., & Seaks, T. G. (1993). Functional form in regression models of Tobin’s q. Review of Economics and Statistics, 75, 381–385.

    Article  Google Scholar 

  • Hofer, C. (1975). Toward a contingency theory of business strategy. Academy of Management Journal, 18, 784–810.

    Article  Google Scholar 

  • Hsiao, C. (1986). Analysis of panel data. Cambridge, MA: Cambridge University Press.

    Google Scholar 

  • Ireland, R. D., & Hitt, M. A. (1999). Achieving and maintaining strategic competitiveness in the 21st century: The role of strategic leadership. Academy of Management Executive, 13, 43–57.

    Google Scholar 

  • Jacobsen, R. (1988). The persistence of abnormal returns. Strategic Management Journal, 9, 415–430.

    Article  Google Scholar 

  • Jimenez-Martin, S. (1998). On testing of heterogeneity effects in dynamic unbalanced panel data models. Economics Letters, 58, 157–163.

    Article  Google Scholar 

  • Klepper, S. (2002). The capabilities of new firms and the evolution of the US automobile industry. Industrial and Corporate Change, 11(4), 645–666.

    Article  Google Scholar 

  • Lanjouw, J. O., Pakes, A., & Putnam, J. (1998). How to count patents and value intellectual property: The uses of patent renewal and application data. Journal of Industrial Economics, XLVI, 405–432.

    Article  Google Scholar 

  • Leibenstein, H. (1976). Beyond economic man: A new foundation for microeconomics. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Levitas, E., & Chi, T. (2002). Rethinking rouse and daellenbach’s rethinking: Isolating vs. testing for sources of sustainable competitive advantage. Strategic Management Journal, 23, 957–962.

    Article  Google Scholar 

  • Lindenberg E. B., & Ross, S. A. (1981). Tobin’s q ratio and industrial organization. Journal of Business, 51, 1–32.

    Google Scholar 

  • Lippman, S., & Rumelt, R. P. (1982). Uncertain imitability: An analysis of interfirm differences in efficiency under competition. Bell Journal of Economics, 13, 418–438.

    Article  Google Scholar 

  • Los, B., & Verspagen, B. (2000). R&D spillovers and productivity: Evidence from US manufacturing microdata. Empirical Economics, 25, 127–148.

    Article  Google Scholar 

  • Mahoney, J. T. (1995). The management of resources and the resource of management. Journal of Business Research, 33, 91–101.

    Article  Google Scholar 

  • Makadok, R. (2004). The competence/collusion puzzle and the four theories of profit: Why good resources go to bad industries. Working Paper, Goizueta Business School, Emory University.

  • Malerba, F., & Orsenigo, L. (2002). Innovation and market structure in the dynamics of the pharmaceutical industry and biotechnology: Towards a history-friendly model. Industrial and Corporate Change, 11(4), 667–704.

    Article  Google Scholar 

  • Markides, C. C., & Williamson, P. J. (1994). Related diversification, core competences and corporate performance. Strategic Management Journal, 15, 149–165.

    Article  Google Scholar 

  • McArthur, A., & Nystrom, P. (1991). Environmental dynamism, complexity, and munificence as moderators of strategy-performance relationships. Journal of Business Research, 23:49–361.

    Article  Google Scholar 

  • McGahan, A. M., & Porter, M. E. (1997). How much does industry matter, really? Strategic Management Journal, 18, 15–30 (summer special issue).

    Article  Google Scholar 

  • Mehra, A. (1996). Resource and market based determinants of performance in the US banking industry. Strategic Management Journal, 17, 307–322.

    Article  Google Scholar 

  • Miller, D., & Shamsie, J. (1996). The resource-based view of the firm in two environments: The hollywood film studios from 1936 to 1965. Academy of Management Journal, 39, 519–543.

    Article  Google Scholar 

  • Nelson, R. R, & Winter, S. (1982). An evolutionary theory of economic change. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Neter, J., Kutner, M. A., Nachtshein, C. J., & Wasserman, W. (1996). Applied linear statistical models (4th ed.). Chicago, IL: Irwin.

    Google Scholar 

  • Nickell, S. J. (1996). Competition and corporate performance. Journal of Political Economy, 104, 724–746.

    Article  Google Scholar 

  • Oulton, N. (1998). Competition and the dispersion of labor productivity amongst UK companies. Oxford Economic Papers, 50, 23–38.

    Google Scholar 

  • Penrose, E. T. (1959). The theory of growth of the firm. London: Basil Blackwell.

  • Peteraf, M. (1993). The cornerstones of competitive advantage: A resource-based view. Strategic Management Journal, 14, 179–192.

    Article  Google Scholar 

  • Petrick, J. A., Scherer, R. F., Brodzinski, J. D., Quinn, J. F., & Ainina, M. F. (1999). Global leadership skills and reputational capital: Intangible resources for sustainable competitive advantage. Academy of Management Executive, 13, 58–69.

    Google Scholar 

  • Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press.

    Google Scholar 

  • Powell, T. C. (1996). How much does industry matter? An alternative empirical test. Strategic Management Journal, 17, 323–334.

    Article  Google Scholar 

  • Reed, R., & DeFillippi, R. (1990). Causal ambiguity, barriers to imitation, and sustainable competitive advantage. Academy of Management Review, 15, 88–102.

    Article  Google Scholar 

  • Roberts, P. W. (1999). Product innovation, product-market competition and persistent profitability in the US pharmaceutical industry. Strategic Management Journal, 20, 655–670.

    Article  Google Scholar 

  • Roberts, P. W., & Dowling, G. R. (2002). Corporate reputation and sustained superior financial performance. Strategic Management Journal, 23, 1077–1093.

    Article  Google Scholar 

  • Rumelt, R. P. (1991). How much does industry matter. Strategic Management Journal, 12, 167–185.

    Article  Google Scholar 

  • Russo, M., & Fouts, P. (1997). A resource-based perspective on corporate environmental performance and profitability. Academy of Management Journal, 40, 534–559.

    Article  Google Scholar 

  • Schroeder, R. G., Bates, K. A., & Junttila, M. A. (2002). A resource-based view of manufacturing strategy and relationship to manufacturing performance. Strategic Management Journal, 23, 105–117.

    Article  Google Scholar 

  • Schumpeter, J. A. (1950). Capitalism, socialism and democracy. New York: Harper Brothers.

    Google Scholar 

  • Shane, H. M., & Klock, M. (1997). The relation between patent citations and Tobin’s q in the semiconductor industry. Review of Quantitative Finance and Accounting, 9, 131–146.

    Article  Google Scholar 

  • Silverman, B. S. (1999). Technological resources and the direction of corporate diversification: Toward an integration of the resource-based view and transaction cost economics. Management Science, 45, 1109–1124.

    Google Scholar 

  • Spanos Y. E., & Lioukas, S. (2001). An examination into the causal logic of rent generation: Contrasting Porter’s competitive strategy framework and the resource-based perspective. Strategic Management Journal, 22, 907–934.

    Article  Google Scholar 

  • Staw, B. M., & Epstein, L. D. (2000). What Bandwagons bring: Effect of popular management techniques on corporate performance, reputation, and CEO pay. Administrative Science Quarterly, 45, 523–556.

    Article  Google Scholar 

  • Stewart, T. A. (1998). America’s most admired companies: Why leadership matters. Fortune, 28, 71–82.

    Google Scholar 

  • Teece, D. J. (1986). Profiting from technological innovation: implications for integration, collaboration, licensing and public policy. Research Policy, 15, 285–305.

    Article  Google Scholar 

  • Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18, 509–533.

    Article  Google Scholar 

  • Vergin, R. C., & Qoronfleh, M. W. (1998). Corporate reputation and the stock market. Business Horizons, 41, 19–26.

    Article  Google Scholar 

  • Villalonga, B. (2004). Intangible resources, Tobin’s q, and the sustainability of performance differences. Journal of Economic Behavior & Organization, 54, 205–230.

    Article  Google Scholar 

  • Waring, G. F. (1996). Industry differences in the persistence of firm-specific returns. American Economic Review, 86, 1253–1265.

    Google Scholar 

  • Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5, 171–180.

    Article  Google Scholar 

  • Wiggins, R. R., & Ruefli, T. M. (2002). Sustained competitive advantage: Temporal dynamics and the incidence and persistence of superior economic performance. Organization Science, 13, 82–105.

    Article  Google Scholar 

  • Yeoh, P.-L., & Roth, K. (1999). An empirical analysis of sustained advantage in the US pharmaceutical industry: Impact of firm resources and capabilities. Strategic Management Journal, 20, 637–665.

    Article  Google Scholar 

Download references

Acknowledgments

The authors have benefited greatly from the comments from and discussions with Vincent Barker III, Holly Buttner, Edward Levitas, Kevin Lowe, Paul Nystrom, and Kamil Tamiscioglu. We thank Brad Brown for generously sharing the America’s Most Admired Corporations database with us. Comments from the Associate Editor, Nicolai Foss and three anonymous reviewers are gratefully appreciated. All the remaining errors, however, are solely our responsibility. An earlier version of this paper was presented at the Annual Academy of Management (AOM) Meeting, Seattle, WA, August 2003.

Author information

Authors and Affiliations

  1. Bryan School of Business and Economics, University of North Carolina at Greensboro, P. O. Box 26165, Greensboro, NC, 27410, USA

    Moses Acquaah

  2. School of Business, University of Kansas, Lawrence, KS, 66045, USA

    Tailan Chi

Authors
  1. Moses Acquaah
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Tailan Chi
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Moses Acquaah.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Acquaah, M., Chi, T. A longitudinal analysis of the impact of firm resources and industry characteristics on firm-specific profitability. J Manage Governance 11, 179–213 (2007). https://doi.org/10.1007/s10997-007-9031-8

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10997-007-9031-8

Keywords

Search

Navigation