Entrepreneurial profitability and persistence: Chile versus the U.S.A. ☆ Jorge Tarziján ⁎ , Francisco Brahm, Luis Felipe Daiber Pontificia Universidad de Chile, Chile Received 1 February 2007; received in revised form 1 April 2007; accepted 1 June 2007 Abstract This article empirically evaluates the main determinants of business performance, focusing on the emergence and sustainability of profits for an emerging economy such as Chile. Furthermore, the paper compares the results obtained with Chilean data to those for the U.S.A. This comparison is interesting because of the recent emergence of some literature that relates geographic location to performance. The results show that the industry effect is more important in Chile than in the U.S.A., that the persistence of rents in Chile is explained more evenly for reasons associated to business-, industry- and corporate-specific effects, and that the path to lower rents is more difficult to revert in Chile than in the U.S.A. © 2007 Elsevier Inc. All rights reserved. Keywords: Determinants of profitability; Persistence; Sustainability; Strategic management 1. Introduction The questions about the determinants of company perfor- mance and its persistence across time are central to strategic management. Porter (1991) indicates that successful theoretical studies on strategy should shed an answer to the foregoing issues and enable to address the different temporal treatment implicit in them successfully. Other authors who underscore this fact, either at an explicit or implicit level, are Barnett and Burgelman (1996), Teece and Pisano (1997), Warren (1999), Lioukas and Spyros (2001), Cockburn, Henderson and Stern (2002), Wiggins and Ruefli (2002), and Ghemawat and Rivkin (2002). While the question on the determinants of entrepreneurial profitability relates to a static dimension, the one about its persistence relates to a dynamic one. Although strategic management recognizes that this distinction is useful in terms of harmonizing the complexity of the problem, both dimensions are to be integrated and addressed jointly (Warren, 1999). However, the need to integrate both dimensions does not imply that the factors accounting for each one of them should be the same (Mcgahan and Porter, 1999; Ruefli and Wiggins, 2003; Villalonga, 2004). This paper estimates the main determinants of business profitability and persistence across time for Chile, and then compares results to those from recent studies with U.S. data. This comparison adds evidence to the increasing theoretical literature that associates part of business profitability to the geographic location of the companies (Kogut, 1991; Ghemawat, 2003; Makino et al., 2004). The results unfolded in this paper tend to support the hypothesis that location does matter in determining business results, and shows that there are differences in the explanation and persistence of profits among companies with different performance. This paper reports empirical regularities in the pattern of profitability distinguishing the influences on the emergence and sustainability of abnormal profitability of year-, industry-, corporate-parent- and business-specific effects. While the sustainability of an abnormal positive return refers to maintain- ing a position that creates value, the emergence of an abnormal positive return is rather a road to a position that creates value. Year-specific effects represent the yearly fluctuations on macroeconomic conditions exerting an influence on all com- panies alike. Industry-specific effects represent those industrial conditions affecting all companies belonging to a same industry in a similar manner, such as the degree of rivalry, barriers to entry and exit, growth rate of demand and installed capacity. Thus, a Available online at www.sciencedirect.com Journal of Business Research 61 (2008) 599 – 608 ☆ The authors thank Consuelo Edwards for the helpful editing suggestions. ⁎ Corresponding author. Escuela de Administración, Pontificia Universidad de Chile. Casilla 76, Correo 17, Santiago—Chile. E-mail addresses: jtarzija@faceapuc.cl (J. Tarziján), fbrahm@cerama.cl (F. Brahm), felipe.daiber@paris.cl (L.F. Daiber). 0148-2963/$ - see front matter © 2007 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusres.2007.06.034