Our work calls into question decades of empirical strategy research using derivations of accounting profits as dependent variables to infer antecedents of economic profits and competitive advantage. While it is well-established that firms share portions of their economic profits with the workforce as rents – payments to the workforce above employee opportunity costs – the implications of this rent sharing for the reliability of accounting profits as a proxies for economic profits remain underexplored. Using simulations, we examine how different patterns of rent-sharing – linear, convex, concave and S-shaped relationships between economic profits and rent-sharing – impact how we might interpret empirical findings. Our findings reveal that S-shaped rent-sharing relationships can distort statistical estimates, sometimes reversing the apparent direction of effects. We then find evidence consistent with an S-shaped workforce rent-sharing curve in a large dataset of 35,740 Belgian firms from 2008-2022 and show that explicitly accounting for these workforce rents in dependent variables may substantially alter key interpretations. We propose a reconsideration of extant work relying on derivations of accounting profits as measures of performance that do not explicitly incorporate workforce rents.
