Assessing financial performance of international food industry firms: A stochastic varying coefficients approach

This research assesses the impact of managerial decision variables on the financial performance of food firms in three country groups. Factor variables that influence the efficiency with which financial performance is attained were also investigated.; The theoretical underpinnings are based on three economic concepts. The first is the concept and theoretical framework of corporate strategy and organizational structure. The economic hypotheses relating market structure with organizational structure is the second concept. The third concept is theory underlying technical efficiency.; A modification of the stochastic varying coefficients model and the technical effects model were used to estimate managerial decision variables and factors affecting efficiency. Unbalanced panel data on 185 food firms, in low-, middle-, and high-income countries over the time period 1987 to 1998 were used for the estimation.; Country group differences were important in explaining variation in financial performance. The level of competitiveness of a country increases the efficiency of managerial decision-making. Efficiency improves when investor protection measures are ensured. Different measures of financial performance measure different managerial objectives. Thus the different measures cannot be used interchangeably. However, weak relations were found between pairs of the financial measure. An important finding of this research is that the previously established relation between return on equity and economic value added is no longer valid when other factors were considered. Instead, a negative relation was found in this study. Industry analysts would benefit from this new finding and mistakes will be avoided by taking note of this finding in their industry analyses.; This research can be used for policy purposes. Portfolio decisions can be made based on more efficient firms and in countries whose environments allow for efficient business operations. Policy can also be formulated for countries with less efficient firms in order to improve performance.