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What makes firms perform well?

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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  1. Leech, Dennis & Leahy, John, 1991. "Ownership Structure, Control Type Classifications and the Performance of Large British Companies," Economic Journal, Royal Economic Society, vol. 101(409), pages 1418-37, November.
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  17. 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.
  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. Short, Helen, 1994. " Ownership, Control, Financial Structure and the Performance of Firms," Journal of Economic Surveys, Wiley Blackwell, vol. 8(3), pages 203-49, September.
  20. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
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