The Impact of Country-Level and Firm-Level on Financial Performance: A Multilevel Approach

The objective of this study is to demonstrate the relative importance of both firm-level and country-level on financial performance. In addition, to explore the influence of firm-level variables (Accounting standards, firm age, firm size, liquidity) together with country-level variables (GDP per capita, inflation rate, development status, human development index, country openness to trade) on financial performance. Financial performance is measured in this study by Return on Assets. Hierarchical Linear Modeling is employed to identify the components of firm performance variability. This study employs a sample of 4095 publicly listed industrial firms from 54 countries listed on stock exchange covering the period from 2014 to 2016.The results show that both firm and country-level performance variations are significant. However, financial performance is explained better by firm-level performance variation that contributes up to 92.8% to variance in financial performance. Moreover, in terms of country-level variables, the results show that country openness to trade and human development index are significantly affecting firm performance. Moreover, in term of firm-level variables, the results show that firm age is negatively related to firm financial performance and firms adopting IFRS are more likely to have higher financial performance than firms adopting local GAAP. This study contributes to the literature by employing Hierarchical Linear Modeling to integrate both firm-level and country-level variables into one cross-sectional analysis. It provides an insight to analysts and stakeholders to consider multi-level characteristics when examining financial performance.