Firm and industry effects on small, medium-sized and large firms’ performance

TLDR

Medium‑sized firms have been understudied relative to SMEs in general. The study investigates whether firm‑ and industry‑effects explain performance similarly across firm sizes, and tests these effects separately for large, medium‑sized, and small firms using EU size classification. The authors empirically test firm‑ and industry‑effects on performance by distinguishing firms by size using the EU standard classification. Results indicate that firm effects dominate performance for large and small firms, whereas industry effects dominate for medium‑sized firms.

Abstract

This paper examines whether or not the relative importance of the firm and industry effects in explaining performance variations is the same regardless of the firm size. In relation to size, we think that there has been particular neglect of studying medium-sized firms separately from SMEs in general. That is why we study separately large, medium-sized and small firms. We also contribute to knowledge on the firm-industry debate testing empirically both effects distinguishing the firms by size according to a standard classification in the EU. Our results show that the performances of large and small firms are mainly explained by the firm effect, albeit for different reasons, while the performance of medium-sized firms is explained primarily by the industry effect.