Do industry or firm effects drive performance in Taiwanese knowledge-intensive industries?

Abstract Previous variance decomposition studies investigating the relative importance of industry and firm effects on performance have primarily focused on the economy as a whole; little research has focused exclusively on individual analysis of knowledge-intensive industries. Given the rising importance of knowledge-intensive industries, this study employs Taiwan's business database to examine whether a firm's performance in knowledge-intensive industries is driven primarily by industry effects or firm effects. To better measure overall firm performance, particularly that of knowledge-intensive firms, we use multiple measures of performance, including an intellectual capital measure of performance (value-added intellectual coefficient), an economic-based measure (economic value added), and an accounting-based measure (return on assets). The results indicate that firm effects contribute a great deal across performance measures, particularly for value-added intellectual coefficient (VAIC). Thus, our study suggests that organizational capabilities that leverage human capital are critical to the learning and growth of firms in Taiwanese knowledge-intensive industries. We also find that industry effects also have important influences on economic performance. The results imply that shareholders use industry membership as an important indicator of a knowledge-intensive firm's capability in value added by capital invested.

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