In this study we revisit the question of whether firms' performance is driven primarily by industry or firm factors, extending past studies in two major ways. Firstly, in a departure from past research, we use value-based measures of performance (economic profit or residual income and market-to-book value) instead of accounting ratios (such as return on assets). We also use a new data set and a different statistical approach for testing the significance of the independent effects. Secondly, we examine whether the findings of past research can be generalized across all firms in an industry or whether they apply to a particular class of firms within the same industry. We find that a significant proportion of the absolute estimates of the variance of firm factors is due to the presence of a few exceptional firms in any given industry. In other words, only for a few dominant value creators (leaders) and destroyers (losers) do firm-specific assets seem to matter significantly more than industry factors. For most other firms, i.e., for those that are not notable leaders or losers in their industry, however, the industry effect turns out to be more important for performance than firm-specific factors. Copyright (C) 2002 John Wiley Sons, Ltd.