What Causes Firm Profitability Variation in the EU Food Industry? A Redux of Classical Approaches of Variance Decomposition

Since the 1980s economic researchers have applied variance decomposition methods such as ANOVA or components‐of‐variance (COV) in order to determine the importance of different effects for firm profitability variation. Nevertheless, these studies either focus on entire manufacturing sectors or on the U.S. food sector. This article, therefore, aims to determine the sources of firm profitability variation for EU food processors using the classical approaches of hierarchical ANOVA and COV. The paper also highlights a lack of the hierarchical ANOVA effect introduction pattern that occurs throughout previous literature. The results suggest that firm‐related effects are the main profit driver while industry, year, and country effects are negligible. [EconLit citations: L10, L25, C33].