Abstract
In this paper, firm heterogeneity in turbulent environments is addressed. It is argued that previous studies have not taken into account effects of a turbulent environment, like the Brazilian context, in which firms must face a weak and erratic government. In such an environment, the large portion of variance usually attributed to firm effects may be explained, not by the usual assumptions of mainstream scholars, but by a more political view of firm differences, namely, the ability to manage valuable political alliances. To account for these differences, a multivariate performance measure was construed and a new factor, politics effects, has been introduced to the usual model. Company donations for campaign funds in elections was used as a proxy for this factor. A sample of 607 observations, of 177 firms in 15 sectors was used. Results suggest that the presence of politics effects were found to be not significant (using COV and Hierarchical ANOVA). However, different from previous studies, transient industry effects appear to be more important than stable effects. Findings also indicate that a better model specification for turbulent environments is needed and highlight the importance of the cost of capital.
Highlights
Firm heterogeneity is a fundamental issue for strategy scholars
The argument here is that one cannot follow the same assumptions because the models used in previous studies do not take into account variation in firm performance due to environmental turbulence, such as that which is peculiar to Brazil, where turbulence is mostly caused by the hostile influence of weak and erratic governments
Considering that firm effects account for the largest portion of firm performance variance, even in a context of extremely turbulent environments, one may argue that this variance cannot be considered as being caused by firm differences in the aspects usually suggested by mainstream theoretical perspectives in strategy, such as competitive resource exploitation, organizational processes, and efficiency, and competitive positioning
Summary
Firm heterogeneity is a fundamental issue for strategy scholars. Why and how firms sustain a competitive advantage over competitors and benefit from superior returns are important questions of the research agenda (RUMELT; SCHENDEL; TEECE, 1994). In such turbulent environments, firm performance variance usually attributed to firm effects would be better explained by differences in building and sustaining valuable political alliances with the powerful.
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