Following the methodology proposed by Schmalensee (1985) and Rumelt (1991), we have canied out a vanance components analysis on the economic profitability data corresponding to a sample of firms quoted on the Madrid Stock Exchange, with the aim of evaluating the relative importance of the sectoral and firm factors which are the determinants of profitability. The results show, in a manner consistent with previous evidence, that the differences in intrasectoral profitability are greater than the intersectoral differences. Nevertheless, it is also shown that the extent of the industry effect is relatively sensitive to the choice of sectors made for the purposes of the research. This result highlights the importance of the precise delimitation of the relevant market in this type of study.

Keywords: industry effect, firm effect, differences of profitability among industries, intraindustnal profitability differences.