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Corporate performance, abnormal profits and sectoral differences - Essay Example
Finance & Accounting
Pages 4 (1004 words)
Corporate Performance, Abnormal Profits and Sectoral Differences Name Subject Tutor Date Firms invest their resources in order to gain revenue. Therefore, their performance is measured in terms of resources firms create from their operations (Rosenzweig, 2007, p.9)…
Whereas some people consider the quantity of firms assets as an indicator of its performance, economists use different approaches such the efficiency in which firm or industry utilize its resources to generate income. Firms operating in the same industry exhibit dissimilar performance while even firms operating under different industries have depicted similar performance trends (Rumelt, 1991, p.179). Therefore, it is not clear as to what exactly determines performance of the firms since some people thinks that directors of the company and the environmental conditions play a significant role in firm performance. One of the key determinants of firm’s performance is the level of resource endowment. Firms are endowed with different resources and this could result to improved performance of the company regardless of the industry in which it operates (Rosenzweig, 2007, p.11). Firms with large resource base enjoy economies of scale to due to large scale production. Therefore, those firms are able to offer their products at a reduced price compared to their competitors who may be experiencing diseconomies of production. Furthermore such firms are able to use most efficient techniques in their operations as a result of intensive research and innovations. Another determinant of the performance of company is its market position. ...