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Productivity, profitability and financial performance

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  • Giulio Bottazzi
  • Angelo Secchi
  • Federico Tamagni

Abstract

This work presents a comparative analysis of two crucial dimensions of firms’ performance: profitability and productivity. The characteristics of their empirical distribution and the associated degree of persistence over time are explored through a set of parametric and non-parametric exercises performed on an exhaustive panel of Italian firms, active in both manufacturing and services, during the period 1998–2003. The main strength of our analysis resides in the use of a credit rating index which allows us to document not obvious interactions which are in place among economic performances, financial conditions and access to external credit. We also investigate how profitability and productivity relates with a third important dimension of performance, that is growth. We find that, independently from the particular sector of activity and from financial conditions, there seems to be weak market pressure and little behavioral inclination for the more efficient and more profitable firms to grow faster. Copyright 2008 , Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/icc/dtn027
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Article provided by Oxford University Press in its journal Industrial and Corporate Change.

Volume (Year): 17 (2008)
Issue (Month): 4 (August)
Pages: 711-751

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Handle: RePEc:oup:indcch:v:17:y:2008:i:4:p:711-751
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  1. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
  2. Giulio Bottazzi & Angelo Secchi, 2003. "Common Properties and Sectoral Specificities in the Dynamics of U.S. Manufacturing Companies," Review of Industrial Organization, Springer, vol. 23(3_4), pages 217-232, December.
  3. Giulio Bottazzi & Angelo Secchi & Federico Tamagni, 2006. "Financial Fragility and Growth Dynamics of Italian Business Firms," LEM Papers Series 2006/07, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  4. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
  5. Giulio Bottazzi & Angelo Secchi, 2006. "Explaining the distribution of firm growth rates," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 235-256, 06.
  6. Giulio Bottazzi & Angelo Secchi & Federico Tamagni, 2014. "Financial constraints and firm Dynamics," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00976545, HAL.
  7. Giulio Bottazzi & Marco Grazzi & Angelo Secchi, 2004. "Characterizing the Production Process: A Disaggregated Analysis of Italian Manufacturing Firms," LEM Papers Series 2004/24, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  8. Chesher, Andrew, 1979. "Testing the Law of Proportionate Effect," Journal of Industrial Economics, Wiley Blackwell, vol. 27(4), pages 403-11, June.
  9. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 317-341.
  10. Giovanni Dosi & Marco Grazzi, 2005. "Technology as Problem-Solving Procedures and Technology as Input-Output Relations: Some Perspectives on the Theory of Production," LEM Papers Series 2005/26, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  11. John DiNardo & Justin L. Tobias, 2001. "Nonparametric Density and Regression Estimation," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 11-28, Fall.
  12. Giulio Bottazzi & Angelo Secchi, 2005. "Growth and Diversification Patterns of the Worldwide Pharmaceutical Industry," Review of Industrial Organization, Springer, vol. 26(2), pages 195-216, December.
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