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What Drives the Productive Efficiency of a Firm? The Importance of Industry,Location, R&D, and Size

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  • Stephan, Andreas

    (Jönköping International Business School)

  • Badunenko, Oleg

    (German Institute for Economic Research, DIW Berlin)

  • Fritsch, Michael

    (Friedrich Schiller University Jena)

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.

Suggested Citation

  • Stephan, Andreas & Badunenko, Oleg & Fritsch, Michael, 2008. "What Drives the Productive Efficiency of a Firm? The Importance of Industry,Location, R&D, and Size," CISEG Working Papers Series 4, Jönköping International Business School, Centre for Innovation Systems, Entrepreneurship and Growth.
  • Handle: RePEc:hhs:hjiseg:0004
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    Cited by:

    1. Chia-Lin Chang & Stéphane Robin, 2012. "Knowledge sourcing and firm performance in an industrializing economy: the case of Taiwan (1992–2003)," Empirical Economics, Springer, vol. 42(3), pages 947-986, June.
    2. Anselm Komla Abots, 2015. "Foreign Ownership of Firms and Corruption in Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 5(3), pages 647-655.
    3. Andreas Stephan, 2011. "Locational conditions and firm performance: introduction to the special issue," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 46(3), pages 487-494, June.

    More about this item

    Keywords

    Frontier analysis; determinants of efficiency; firm performance; industry effects; regional effects; firm size;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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