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

33 Pages Posted: 9 Apr 2008

See all articles by Oleg Badunenko

Oleg Badunenko

DIW-Berlin

Michael Fritsch

University of Jena - School of Economics and Business Administration

Andreas Stephan

DIW Berlin, German Institute for Economic Research

Date Written: March 1, 2008

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

JEL Classification: D24, L10, L25

Suggested Citation

Badunenko, Oleg and Fritsch, Michael and Stephan, Andreas, What Drives the Productive Efficiency of a Firm? The Importance of Industry, Location, R&D, and Size (March 1, 2008). DIW Berlin Discussion Paper No. 775, Available at SSRN: https://ssrn.com/abstract=1118303 or http://dx.doi.org/10.2139/ssrn.1118303

Oleg Badunenko (Contact Author)

DIW-Berlin ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

HOME PAGE: http://obadunenko.googlepages.com/

Michael Fritsch

University of Jena - School of Economics and Business Administration ( email )

Carl-Zeiss-Str. 3
D-07743 Jena
Germany

Andreas Stephan

DIW Berlin, German Institute for Economic Research ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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