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Technical Inefficiency and Firm Behavior: A Panel Study of Small and Medium Japanese Manufacturing Firms

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  • OGAWA Kazuo

Abstract

This study examines the technical inefficiency of small and medium Japanese manufacturing firms by using panel data from the Basic Survey on Small and Medium Enterprises (2009-2018). We estimate the stochastic frontier production function with four production factors (regular workers, nonregular workers, capital stock and materials) and calculate the technical inefficiency of individual firms by applying a true random effects model that can distinguish technical inefficiency from firm heterogeneity. We find that inefficient firms are smaller, rely more on nonregular workers, exhibit poorer firm performance, have a higher debt-asset ratio, pay a lower interest rate and are inactive in capital investment and R&D investment. We also find that inactive capital investment and a high debt-asset ratio are mainly responsible for causing technical inefficiency.

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  • OGAWA Kazuo, 2021. "Technical Inefficiency and Firm Behavior: A Panel Study of Small and Medium Japanese Manufacturing Firms," Discussion papers 21068, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:21068
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