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Centre for Innovation Systems, Entrepreneurship and Growth, Jönköping International Business School CISEG Working Papers Series
Centre for Innovation Systems, Entrepreneurship and Growth, Jönköping International Business School

No 4:
What Drives the Productive Efficiency of a Firm? The Importance of Industry,Location, R&D, and Size

Andreas Stephan (), Oleg Badunenko () and Michael Fritsch ()

Abstract: This paper investigates the factors that explain the level and dynamics of productive efficiency of a manufacturing firm. In our empirical analysis, we use a unique sample of about 39,000 firms in 256 industries from the German Cost Structure Census over the years 1992–2005. We estimate the efficiencies of the firms and relate them to firm-specific and environmental factors.

We find that (1) about half of the model’s explanatory power is due to industry effects, (2) that firm size accounts for another twenty percent, and (3) that the headquarters’ location explains approximately fifteen percent.

Interestingly, most other firm characteristics such as R&D intensity, outsourcing activities or the number of owners have an extremely small explanatory power. Surprisingly, our findings suggest that higher R&D intensity is associated with being less efficient, though higher R&D spending increases a firm’s efficiency over time.

Keywords: Frontier analysis; determinants of efficiency; firm performance; industry effects; regional effects; firm size; (follow links to similar papers)

JEL-Codes: D24; L10; L25; (follow links to similar papers)

32 pages, March 25, 2008

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