2011 Reports

What Drives the Profitability of Japanese Multi-Business Corporations? A Variance Components Analysis

Fukui, Yoshitaka; Ushijima, Tatsuo

This article decomposes the business-level profit rate of Japanese multi-business corporations by performing a variance components analysis on a large sample of publicly traded non-financial firms in 1998-2003. Consistent with U.S. evidence, estimation results demonstrate that profitability is predominantly determined by business-level factors, not corporate-level ones, suggesting that a typical multi-business corporation in Japan is a combination of relatively distinct businesses in terms of profit.