Abstract
Explaining sources of profitability has been a major research stream in corporate finance and strategic management literature for decades. However, we have limited understanding of the sources of variations in firm profitability, especially in Norway, where the linkage of the sustainability of business entities and the economic sustainability of Norway is quite pronounced due to the extended role of the state actively engaged in business activities. Using a unique and all-inclusive dataset of all businesses in all sectors having various ownership forms over 2008–2016 of this advanced service economy, this study opens the black box of variations in profitability of Norwegian businesses. Overall, firm characteristics explain most of the variation in profitability, but we identify one industry where the industry effect dominates. Among several variables, long-term finance and short-term finance explain most of the variations in profitability.
Highlights
Sustainability intertwines management of businesses and the economies and societies forcing their policymakers to devise sustainable practices for their investments, strategies and management without forgoing core corporate objectives of value maximization and stabilizing the economy of a sustainable society [1,2]
The source of variations in firm profitability is a key question within corporate finance and strategic management research, and this question becomes even more important for the case of Norway where the linkage of the sustainability of business entities and the economic sustainability of Norway is quite pronounced because the state actively engages in business activities by having major ownership stakes in many corporate entities along with provision of free education, health and many other social services to its population
Following the research design of earlier studies [5], this study contributes to strengthening the foundations of strategic management and corporate finance by building cumulative knowledge [13]
Summary
Sustainability intertwines management of businesses and the economies and societies forcing their policymakers to devise sustainable practices for their investments, strategies and management without forgoing core corporate objectives of value maximization and stabilizing the economy of a sustainable society [1,2]. We want to strengthen the cumulative body of research by contributing a study that to the best of our knowledge identifies for the first time the sources of profit heterogeneity of Norwegian firms by utilizing the data from the whole Norwegian economy including all different forms of businesses. In contrast with the earlier studies, ours is an all-inclusive sample that includes all 17 different industries in one economy, including manufacturing [6,7] and services [5] and both the private and public sectors, including education, bringing in the full spectrum of registered corporate entities (i.e., large and small firms, listed and unlisted firms, limited liability firms and sole proprietorship firms).
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