Industry and Firm effects and their Impact on Firm Performance: Changes during the Economic Crisis

This study aims to contribute to the long-standing debate on the impact of firm effects and industry effects on firm performance. The aspect that distinguishes this research from earlier studies on the topic is the distinction between a regular economic period and a period of economic crisis. No studies have been conducted yet on the differences between firm and industry effects in these two types of periods. To research this a sample of 1032 firms based in the United Kingdom is used, containing data on firm performance between the years 2004 and 2009. Two different statistical methods are used to determine possible changes. First a panel data regression, the Arellano-Bond method, is ran using the full data sample. After this the seemingly unrelated estimations method is used to determine the relationships for the years 2006 and 2009 separately. Here the 2006 regression represents the pre-crisis period and the 2009 regression represents the crisis period. The results show no difference in the industry effect between the pre-crisis period (2004-2006) and the crisis period (2007-2009). Concerning the firm effect a statistically significant change was discovered, showing that the firm effect decreased in the crisis period compared to the pre-crisis period.