Analysis of variance of the benefits of manufacturing firms in Colombia, 1995 - 2000

Abstract

By exploring the issue of profits, from the perspective of the Industrial Organization Theory, the authors make a study with a sample of manufacturing companies in Colombia, during the period 1995-2000. The profits are a key variable in the economic analysis, not only as an evidence of the business productivity, but also as a base of the accumulation process.
In this working paper, a state of the art on the studies on profits is presented, making references to the works of Schmalensee (1985), Rumelt (1991), and Roquebert et al. (1996), and describing the different approaches by the classical proposals and the management theories, as well as some empirical exercises in other countries. In the methodological context, the differences between the profits measures and the Component of Variance procedure (Varcomp) are explained in order to quantify the firm (corporation) effect, the industry (sector) effect, year effect and error term effect.

The results obtained, after estimating the econometric model (using the Log likelihood method), are the following: firm (corporation) effect represents 23.8% of the total variance of profits; industry (sector) effect about 3% and year effects 1.7%, and finally the error term effect counts for 71.5%.