Scandinavian Working Papers in Economics
Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies
No 126: What Drives the Productive Efficiency of a Firm? - the importance of industry, location, R&D, and size
Oleg Badunenko (), Michael Fritsch () and Andreas Stephan ()
Additional contact information
Oleg Badunenko: DIW Berlin
Michael Fritsch: Friedrich Schiller University Jena, Max Planck Institute of Economics Jena and DIW
Andreas Stephan: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Abstract: This paper investigates the factors that explain the level and dynamics of manufacturing firm productive efficiency. 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 the model’s explanatory power is due to industry effects, (2) firm size accounts for another 20 percent, and (3) location of headquarters explains approximately 15 percent. Interestingly, most other firm characteristics, such as R&D intensity, outsourcing activities, or the number of owners, have extremely little 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
31 pages, April 2, 2008
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