HOW MUCH DOES INDUSTRY MATTER, REALLY

In this paper, we examine the importance of year, industry, corporate- parent, and business-specific effects on the profitability of U.S. pub lic corporations within specific 4-digit SIC categories. Our results i ndicate that year, industry, corporate-parent, and business-specific e ffects account for 2 percent, 19 percent, 4 percent, and 32 percent, r espectively, of the aggregate variance in profitability We also find t hat the importance of the effects differs substantially across broad e conomic sectors. Industry effects account for a smaller portion of pro fit variance in manufacturing but a larger portion in lodging/entertai nment, services, wholesale/retail trade, and transportation. Across al l sectors we find a negative covariance between corporate-parent and i ndustry effects. A derailed analysis suggests that industry, corporate -parent, and business-specific effects are related in complex ways. (C ) 1997 by John Wiley & Sons, Ltd.