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TYPESETTING
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What Do We Know About Variance in Accounting
Profitability?\\
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Anita M. McGahan \\
{\it Boston University School of
Management}, \\{\it 595
Commonwealth Avenue},\\
{\it Boston, Massachusetts 02215}\\
{\it amcgahan@bu.edu}\\
\bigskip
Michael E. Porter\\
{\it Harvard Business School},\\
{\it Soldiers Field},\\
{\it Boston, Massachusetts 02163}\\
{\it mporter@hbs.edu}\\
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\begin{quotation}
{\abs{\dropletter{I}n this paper, we analyze
the variance of
accounting profitability $~~~~$among a broad
cross-section of
firms in the American economy from
1981--1994. The purpose of the
analysis is to identify the importance of
year, industry,
corporate-parent, and business-specific
effects on accounting
profitability among operating businesses
across sectors. The
findings indicate that industry and
corporate-parent effects are
important and related to one another. As
expected,
business-specific effects, which arise from
competitive
positioning and other factors, have a large
influence on
performance. The analysis reconciles the
results of previous
studies by exploring differences in method
and data. We also
identify the broad contributions and
limitations of the research,
and suggest avenues for further study. New
approaches are
necessary to generate significant insights
about the relationships
between industry, corporate-parent, and
business influences on
firm profitability.}}
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