Empirical researches on firm performance heterogeneity usually model year, industry and firm effects to assess their contributions to total firm performance variation. In this paper, we use three indicators to compose a performance measure of firms operating in Brazil. We argue that a single indicator is not capable of taking into account the effects of a turbulent environment. Data on firm performance were collected for 177 listed firms in 15 industries, for a 5-year period (1998-2002). We found that, similar to previous studies that used a single indicator for performance, firm effects accounted for most of the variation found in data. Conversely, the amount of total variation associated with transient industry effects was greater than the stable effects. Results also indicate that attractive industries “buffer” negative effects of environmental turbulence and the characteristics of firm capital structure appear to be associated to the efficacy of such “buffering”.
Firm heterogeneity; variance decomposition; firm performance; turbulent environments; transient and stable industry effects