Performance analysis of Italian manufacturing companies: a multilevel linear approach

The Italian economy is the second biggest manufacturing power in Europe, surpassed only by Germany in terms of production value. After a long decline, the manufacturing activity is experiencing a revival in many countries and its development is one of the objectives of Agenda 2020 of the European Union. This study aims to assess the major determinants affecting companies performance by using the ROA (Return On Assets) index and by distinguishing between time-varying and time-constant company characteristics. The data are drawn from a sample of 897 Italian manufacturing companies of different sizes over a ten year period, from 2001 to 2011. A multilevel approach is adopted to take into account the longitudinal structure of the data. First, the analysis is performed under the normality of random effects and, then, such restrictive assumption is removed in favour of a semi-parametric approach based on the discreteness of random effects. Results show a positive impact of valued added production and a negative impact of high leverage on firm performance. In addition, company structure and size seems to have a significant impact on firm performance. Moreover, as a result of random effects estimation, a ranking of companies is obtained, which can be synthesised through homogenous latent classes that distinguish among low-, medium-, and high- performers.