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What makes firms perform well?

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  • Nickell, Stephen
  • Nicolitsas, Daphne
  • Dryden, Neil

Abstract

In this paper, we investigate the role of three external factors in generating improved productivity performance in companies. These are product market competition, financial market pressure and shareholder control. We have found, using data from around 580 UK manufacturing companies, that all three of these are associated with some degree of increased productivity growth. More specifically, average rents normalised on value-added (an inverse measure of competition) are negatively related to (total factor) productivity growth, interest payments normalised on cash flow are positively related to future productivity growth and firms with a dominant external shareholder from the financial sector have higher productivity growth rates. Furthermore, there is some evidence to suggest that the last two factors can substitute for competition.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 41 (1997)
Issue (Month): 3-5 (April)
Pages: 783-796

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Handle: RePEc:eee:eecrev:v:41:y:1997:i:3-5:p:783-796

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References

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  1. Larry Lang & Eli Ofek & Rene M. Stulz, 1995. "Leverage, Investment, and Firm Growth," NBER Working Papers 5165, National Bureau of Economic Research, Inc.
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  9. Richard Blundell & Rachel Griffith & John Van Reenen, 1994. "Dynamic count data models of technological innovation," IFS Working Papers W94/10, Institute for Fiscal Studies.
  10. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August.
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  12. Leech, D. & Leahy, J., 1989. "Ownership Structure, Control Type Classifications And The Performance Of Large British Companies," The Warwick Economics Research Paper Series (TWERPS) 345, University of Warwick, Department of Economics.
  13. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  14. R Curcio, 1994. "The Effect of Managerial Ownership of Shares and Voting Concentration on Performance," CEP Discussion Papers dp0185, Centre for Economic Performance, LSE.
  15. Green, Alison & Mayes, David, 1991. "Technical Inefficiency in Manufacturing Industries," Economic Journal, Royal Economic Society, vol. 101(406), pages 523-38, May.
  16. Cubbin, John S & Leech, Dennis, 1983. "The Effect of Shareholding Dispersion on the Degree of Control in British Companies: Theory and Measurement," Economic Journal, Royal Economic Society, vol. 93(37), pages 351-69, June.
  17. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
  18. Harrison, Ann E., 1994. "Productivity, imperfect competition and trade reform : Theory and evidence," Journal of International Economics, Elsevier, vol. 36(1-2), pages 53-73, February.
  19. Geroski, P A, 1990. "Innovation, Technological Opportunity, and Market Structure," Oxford Economic Papers, Oxford University Press, vol. 42(3), pages 586-602, July.
  20. Richard E. Caves, 1992. "Industrial Efficiency in Six Nations," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031930, December.
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  22. Schmidt, Klaus M, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 191-213, April.
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