Financial performance of hidden champions: Evidence from German manufacturing firms

Abstract Hidden champions are market leaders in niche markets and are an important part of the German Mittelstand. Although the hidden champion phenomenon has received considerable interest in practice, few academic studies on this issue exist. We especially lack evidence on the financial performance of hidden champions. Our study addresses this gap and investigates the profitability of hidden champions. In analyzing a panel dataset of 4677 German manufacturing firms, of which 617 are hidden champions, we find that hidden champions have significantly higher profitability with regard to return on assets but less so regarding return on equity. The hidden champion performance effect on return on assets is valued at 1.7 percentage points. Furthermore, the hidden champion performance effect decreases with firm size. Our paper contributes to the literature on the effect of firm strategy on firm profitability and adds to a better understanding of the hidden champion phenomenon.