What does affect firm profitability? : revisiting firm, industry and country effects on firm profitability

Abstract

The purpose with this thesis is to examine the relevance of firm, industry and country effects on firm profitability under macroeconomic turbulence such as recessions. Despite years of research in the field of strategic management, it is still unclear to what extent firm, industry and country effects have on firm profitability under macroeconomic adversity. I revisit and reconcile the resource-based view and the industrial organization economic with institutional theory in order to investigate the effects of firm and industry effects on firm profitability in a changing economic environment. In order to investigate country effects on firm profitability a cross function of international business, international economics and finance will be applied. In addition, this thesis also employ return on assets as a performance measurement and incorporate elements of corporate finance, mainly the interest coverage ratio and degree of operating leverage. By integrating the interest coverage ratio and degree of operating leverage, I investigate if firms with a high interest coverage ratio and a high degree of operating leverage experience a higher return on assets.