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Abstract This paper reexamines the determinants of firm performance and, in particular, the role that firm size plays in profitability. A fixed‐effects dynamic panel data model for over 7,000 US publicly‐held firms during the period 1987–2006 provides evidence that profit rates are positively correlated with firm size in a non‐linear manner, holding an array of firm‐ and industry‐specific characteristics constant. In addition, industry‐specific fixed effects play a negligible role in the presence of firm‐specific fixed effects.
Jim Lee (Sat,) studied this question.