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A translog estimation of the average cost function of the steel industry with financial accounting data

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  • Theo Stratopoulos
  • Evangelos Charos
  • Kelly Chaston

Abstract

This paper proposes a measure to assess firm performance which is based in neoclassical production theory and yet can be empirically estimated with widely available financial accounting ratios. A translog cost function is estimated, and fitted per-unit average cost figures are generated based upon the firm's individual characteristics and industry norms. The deviation of a firm's actual average per-unit cost from the fitted value is proposed as a predictor of firm profitability. This measure is then tested on firms in the steel industry. It is shown that the accounting ratios generate a cost function which behaves in accordance with neoclassical microeconomic theory, and accounting profits are indeed found to be inversely related to the calculated efficiency measure. Copyright International Atlantic Economic Society 2000

Suggested Citation

  • Theo Stratopoulos & Evangelos Charos & Kelly Chaston, 2000. "A translog estimation of the average cost function of the steel industry with financial accounting data," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 6(2), pages 271-286, May.
    • Handle: RePEc:kap:iaecre:v:6:y:2000:i:2:p:271-286:10.1007/bf02296108
    DOI: 10.1007/BF02296108
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    References listed on IDEAS

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    6. Fuss, Melvyn & McFadden, Daniel, 1978. "Production Economics: A Dual Approach to Theory and Applications (I): The Theory of Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number fuss1978.
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    Cited by:

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    5. Mirshojaeian Hosseini , Hossein & Majed , Vahid & Kaneko , Shinji, 2015. "The Effects of Energy Subsidy Reform on Fuel Demand in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 10(2), pages 23-47, January.
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    7. Hossein Mirshojaeian Hosseini & Shinji Kaneko, 2013. "Fuel Conservation Effect of Energy Subsidy Reform in Iran," Working Papers 3-1, Faculty of Economics,University of Tehran.Tehran,Iran.
    8. Ma, Hengyun & Oxley, Les & Gibson, John, 2009. "Substitution possibilities and determinants of energy intensity for China," Energy Policy, Elsevier, vol. 37(5), pages 1793-1804, May.
    9. Ma, Hengyun & Rae, Allan N., 2004. "Hog Production In China: Technological Bias And Factor Demand," China Agriculture Project Working Papers 23688, Massey University, Centre for Applied Economics and Policy Studies.

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