CISEG Working Papers Series
Centre for Innovation Systems, Entrepreneurship and Growth, Jönköping International Business School
What Drives the Productive Efficiency of a Firm? The Importance of Industry,Location, R&D, and Size
(), 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
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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