To read the full version of this content please select one of the options below:

Variance decomposition of firm performance: past, present and future

Ebes Esho (Department of Accountancy, University of Johannesburg, Johannesburg, South Africa)
Grietjie Verhoef (Department of Accountancy, University of Johannesburg, Johannesburg, South Africa)

Management Research Review

ISSN: 2040-8269

Article publication date: 14 December 2020

Issue publication date: 21 June 2021

296

Abstract

Purpose

The purpose of this paper is to present a review of variance decomposition studies of firm performance and the theoretical foundations that served as the antecedents and promptings for this stream of research. Known collectively as “variance decomposition literature,” these studies use variance decomposition techniques to partition firm performance into various classes of effects in a bid to unveil the relative importance of factors responsible for firm performance variance.

Design/methodology/approach

A review of papers published in SCOPUS and institute for scientific information indexed journals was conducted.

Findings

The study found that firm, industry, corporate, business group and country effects are the major effects included in most extant studies. However, of all effects, firm effects remain the dominant and most important impact on firm performance. The effects that affect firm performance are also interdependent.

Practical implications

Consequently, the decisions of managers in firms are still the most important element in helping the firm to navigate industry and contextual factors, especially during periods of recession.

Originality/value

From the review, research gaps were identified and suggestions for future research provided. There is still much to learn from variance decomposition literature in an age of new business models, unprecedented start-up firms and from developing and emerging market countries.

Keywords

Acknowledgements

The authors will like to thank Dr Adetunji Adegbesan for his invaluable feedback on the summary report on the initial articles reviewed.

Citation

Esho, E. and Verhoef, G. (2021), "Variance decomposition of firm performance: past, present and future", Management Research Review, Vol. 44 No. 6, pp. 867-888. https://doi.org/10.1108/MRR-07-2020-0393

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

Related articles