International Journal of Economics and Finance; Vol. 8, No. 11; 2016 ISSN 1916-971XE-ISSN 1916-9728 Published by Canadian Center of Science and Education 60 Firm Performance and Its Drivers: How Important Are the Industry and Firm-Level Factors? Olubanjo Michael Adetunji 1 & Akintola Amos Owolabi 1 1 Department of Accounting, Finance & Economics, Lagos Business School, Pan-Atlantic University, Nigeria Correspondence: Olubanjo M. Adetunji, Department of Accounting, Finance & Economics, Lagos Business School, Pan-Atlantic University, Km 22 Lekki-Epe Expressway, Ajah, Lagos, Nigeria. Tel: 234-816-4514-210. E-mail: oadetunji@lbs.edu.ng Received: August 30, 2016 Accepted: September 20, 2016 Online Published: October 25, 2016 doi:10.5539/ijef.v8n11p60 URL: http://dx.doi.org/10.5539/ijef.v8n11p60 Abstract This paper provides empirical evidence for the relative importance of industry and firm-level factors as determinants of firm performance. It also shows the relevance of the individual factors at both industry and firm levels. The paper therefore attempts to provide evidence for effects of industry and business-specific factors on firm performance using data from a developing economy. The study uses the financial and other organization-specific data of firms listed on the Nigerian Stock Exchange. The findings show that organization-specific factors are relatively more important than the industry factors, accounting for 66.58 percent of the variation in return on asset with little or no evidence for the effects of industry-level factors on return on asset. Financial leverage, firm size and firm growth rate are shown to be the most relevant firm-level factors. Firm-level factors also account for slightly more variance in Tobin’ s Q than the industry factors. The results also show that the industry sector of the firm is the most relevant industry-level determinant of firm market performance. There is however little or no evidence for the effects of both industry- and firm-level factors on return on equity. Keywords: firm performance, market performance, industry organization, financial leverage, firm size 1. Introduction Firm performance is a very broad management topic. A number of factors and their effects on firm performance have been studied by management researchers. The key performance measures of a firm include such financial measures as earning per share (EPS), return on asset (ROA), return on equity (ROE) and return on sale (ROS) among other. However firm performance has also been measured using non-financial measures that affect their image such as their corporate social responsibility (CSR) efforts such as the use of ‘green’ materials, charitable contributions, ethics training/enforcement and workforce diversity programmes. Although these efforts impact negatively on the financial performance of the firm in the short term, they have been shown to positively affect the firm’ s financial performance in the long run (Ahamed, Almsafir, & Al-Smadi, 2014; Brammer & Millington, 2008; Eisenbeiss, Knippenberg, & Fahrbach, 2015; Nielsen & Nielsen, 2013; Richard, 2000). This explains why most of the studies on factors affecting firm performance have used the financial performance measures. The factors identified in the literature as drivers of firm performance can be broadly grouped into industry-related factors and organization-specific factors. While industry organization theorists view industry factors as the primary determinants of firm performance (Bain, 1954; Schmalensee, 1985) their business-strategy counterparts suggest that a firm’ s unique resources and capabilities are the primary drivers of firm’ s profitability (Barney, 1991; Barney, 2011; Wernerfelt, 1984; Wernerfelt, 2013). Therefore, two alternative views coexist about the relative importance of industry and organizational factors of firm profitability (Chaddad & Mondelli, 2013). This study attempts to provide empirical evidence for the relative importance of industry- and business-specific factors using data from a developingeconomy. Developing economies like Nigeria have recorded relatively high economic growth when compared to growth rates in developed economies. Nigeria is named among the next 11 emerging economies by Goldman Sachs Group Inc., it is therefore necessary to see whether the industry- and firm-level factors in emerging economies affect firm performance in a way similar to the effects of these factors on firm performance in developed economies. Both industry and firm-specific factors have been shown to affect firm performance mostly in the developed economies (Bowman & Helfat, 2001; Chaddad & Mondelli, 2013;