656 J. A Roquebert, R. L. Phillips and P. A. Westfall whereas none of the coefficients in the specified by year interactions, o represent the SBU effects, equation could be given a'defensible structural and E represent error. Variances associated with interpretationthe model taken as a whole could particular effects address" the relative merits of at least the extreme 02, and o2 versions of the classical, revisionist, and mana- Since Schmalensee (1985)used only a single genial positions. The relative magnitudes of the years worth of data, if we were to translate variables would suggest support or lack of support Schmalensee's model using Rumelt's specification for each (t= l year)we would have Schmalensee (1985: 344)tested for the nce of industry effects (nonidentical B), corpor- rikl =u+a+Bk+ y1+8n+i E(4) ate effects (nonidentical a), and share effects (nonzero y), using ordinary least squares and =(μ+Y1)+(a1+8a)+Bk+(中+E) the usual F-statistics. The results indicated that =H+a+βk+∈ corporate effects simply do not exist ( Schmalensee, 1985: 346). In contrast, tests for As pointed out by Rumelt(1991), it is clear that the existence of industry and share effects were persistent effects(oi and di) are not estimable significant at least at the level of 0.045. Schma- when only 1 year of data is considered; time- lensee (1985)reformulated his basic model leav- series data is needed to isolate their effects out the term representing corporate effects, In Schmalensee's (1985)model, industr he as(see Equation 1), and applied the effects'are the combined effects of industry and riance component analysis. His results allocated industry-time interaction in Rumelt's (1991) less than 1 percent of the variance to share model. It can also be seen that Schmalensee's effects, 19.5 percent to industry effects, and the error effects' are the combined effects of error remaining variance(80%)to error and the persistent SBU effects of Rumelt's model It should also be noted that Schmalensee(1985: The corporate effects are the same in both mod- 345)addressed the issue of whether or not it is els. It should be noted that Schmalensee con- defensible to work with industry-level data, i. e, sidered a market share variable in the variance examining the average SBu Roa by industry. component analysis; however, its contribution to y so doing, his basic equation then became variance explained was negligible (less than 1 percent), and will not be included in the remain R;=u+B +terms in as, Ss, and es(2)der of the discussion. Assuming that all effects are independent, the variances are related as fol where R, is the average SBU ROA for industry lows(anything with a prime refers to Schmalen- j. He then suggested that industry- level analysis see‘ s model):2=σa+ os and o2=σd+σ2 would to be sensible if estimates of the The theoretical corporate variance, o3 is identical variance of B(industry effects)are large relative in both models to the cross-section variance of the R, Thus, Schmalensee's(1985) industry effects (Schmalensee, 1985: 345 ). It was through the (about 20 percent; from Table 1, p. 348)corre- latter analysis that he found that the industry sponds to the sum of Rumelt's(1991)industry effects in Equation 2 accounted for over 75 per- year interaction, plus "industry variance compo- cent of the variance nents(about 16 percent), as given in Rumelt's As indicated above, Rumelt (1991) used the (1991) Table 3, p 178.(Note: Rumelt, 1991 ame data as Schmalensee but added to it the drew two samples, A and B. Sample a closely data for the years 1974, 1976, and 1977. Rumelt followed Schmalensee's, 1985, selection pro- (1991) then postulated the following model cedure and, among other things, excluded all BUs with sales less than 1 percent of the FtC r=+Q1+阝k+Y:+8n+中读+∈(3) industry total sales for a given year. Sample B was an expanded Sample A through the addition ere rikt represents the sBu rOa for a given of smaller SBUs) SBU of corporation k in industry i in year t; a Schmalensee's estimate of o2(error)is about are industry effects, B are the corporate effects, 80, whereas Rumelt's estimate of o2+o2 y represent the year effects, 8 are the industry (combined error and SBU effects )is 83 percent-