The power of momentum on firm performance: a myth or a reality?

Purpose – The purpose of this paper is to extend research related to a firm’s behavioural momentum and its financial performance and to further examine any moderating effect from various perspectives - how firm-level (firm age and size), industry-level, and country-level factors can interact with the power of momentum to affect a firm’s performance. Design/methodology/approach – Data were collected from the Compustat and Yahoo Finance databases for firms in the USA and the Taiwan Economic Journal (TEJ) for firms in Taiwan. The final sample of US firms is from a panel with 239 unique companies in electronics-related industries across a 22-year time span (1991-2012). The final sample of Taiwanese firms is from a panel with 184 unique companies also in electronics-related industries across a 22-year time span (1991-2012). Findings – The results show that momentum does not significantly improve firm performance, and thus the power of momentum is a myth. However, the relationship between momentum and firm performance can be moderated by firm age, size, capital intensity, and country of origin, respectively, under some circumstances. Originality/value – The originality and value are that this is a multiple-perspective study of firm behavioural momentum and firm performance to comprehensively discover each of their respective relationships. This study has further extended the debate over path-dependent perspectives with contingent perspectives across the borders to fill knowledge and theoretical gaps, while the evidence-based findings provide top management with practical knowledge for strategic planning and execution with another avenue for future research on the momentum effect.