IDEAS home Printed from https://ideas.repec.org/p/ind/igiwpp/2019-036.html
   My bibliography  Save this paper

The Impact of size and group affiliation in emerging markets: A Cost efficiency analysis of Indian firms

Author

Listed:
  • Ramesh Jangili

    (Indira Gandhi Institute of Development Research
    Institute of Economic Growth)

Abstract

Despite strengthening market discipline and improving overall competition, emerging markets, like India, still have severe information problems. Large firms and group firms in these markets have the potential to gain differential advantage as well as destroy value. We analyse the cost efficiency performance of firms in India: the degree of cost efficiency with respect to firm size and the cost efficiency of firms affiliated to business groups with that of standalone firms. We find that as firm size increases the degree of cost efficiency decreases and standalone firms exhibit better cost efficiency scores when compared with that of group affiliated firms. This supports the view that firms having either market power or involved in explicit or implicit form collusion incur higher costs. Alternatively, firms which do not have market power minimises the cost in a better way.

Suggested Citation

  • Ramesh Jangili, 2019. "The Impact of size and group affiliation in emerging markets: A Cost efficiency analysis of Indian firms," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-036, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2019-036
    as

    Download full text from publisher

    File URL: http://www.igidr.ac.in/pdf/publication/WP-2019-036.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Maudos, Joaquin & Pastor, Jose M. & Perez, Francisco & Quesada, Javier, 2002. "Cost and profit efficiency in European banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(1), pages 33-58, February.
    2. Jim Lee, 2009. "Does Size Matter in Firm Performance? Evidence from US Public Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 16(2), pages 189-203.
    3. Lampe, Hannes W. & Hilgers, Dennis, 2015. "Trajectories of efficiency measurement: A bibliometric analysis of DEA and SFA," European Journal of Operational Research, Elsevier, vol. 240(1), pages 1-21.
    4. Sumit Majumdar & Kunal Sen, 2007. "The debt wish: Rent seeking by business groups and the structure of corporate borrowing in India," Public Choice, Springer, vol. 130(1), pages 209-223, January.
    5. Ray, Subhash C. & Das, Abhiman, 2010. "Distribution of cost and profit efficiency: Evidence from Indian banking," European Journal of Operational Research, Elsevier, vol. 201(1), pages 297-307, February.
    6. Willam Greene, 2005. "Fixed and Random Effects in Stochastic Frontier Models," Journal of Productivity Analysis, Springer, vol. 23(1), pages 7-32, January.
    7. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, April.
    8. Kumbhakar, Subal C., 1990. "Production frontiers, panel data, and time-varying technical inefficiency," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 201-211.
    9. Fried, Harold O. & Lovell, C. A. Knox & Schmidt, Shelton S. (ed.), 1993. "The Measurement of Productive Efficiency: Techniques and Applications," OUP Catalogue, Oxford University Press, number 9780195072181.
    10. Hung-jen Wang & Peter Schmidt, 2002. "One-Step and Two-Step Estimation of the Effects of Exogenous Variables on Technical Efficiency Levels," Journal of Productivity Analysis, Springer, vol. 18(2), pages 129-144, September.
    11. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    12. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    13. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-374, October.
    14. Tarun Khanna & Yishay Yafeh, 2007. "Business Groups in Emerging Markets: Paragons or Parasites?," Journal of Economic Literature, American Economic Association, vol. 45(2), pages 331-372, June.
    15. Anup Bhandari & Pradip Maiti, 2012. "Efficiency of the Indian leather firms: some results obtained using the two conventional methods," Journal of Productivity Analysis, Springer, vol. 37(1), pages 73-93, February.
    16. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
    17. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    18. Kumbhakar,Subal C. & Lovell,C. A. Knox, 2003. "Stochastic Frontier Analysis," Cambridge Books, Cambridge University Press, number 9780521666633, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ramesh Jangili, 2020. "Profitability in emerging markets: Efficiency or market power? A Study of Indian firms," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2020-003, Indira Gandhi Institute of Development Research, Mumbai, India.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sickles, Robin C. & Song, Wonho & Zelenyuk, Valentin, 2018. "Econometric Analysis of Productivity: Theory and Implementation in R," Working Papers 18-008, Rice University, Department of Economics.
    2. K. Ravirajan & K.R. Shanmugam, 2021. "Efficiency of commercial banks in India after global financial crises," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(628), A), pages 65-82, Autumn.
    3. Farsi, Mehdi & Filippini, Massimo, 2009. "An analysis of cost efficiency in Swiss multi-utilities," Energy Economics, Elsevier, vol. 31(2), pages 306-315, March.
    4. Antonio Alvarez & Carlos Arias, 2014. "A selection of relevant issues in applied stochastic frontier analysis," Economics and Business Letters, Oviedo University Press, vol. 3(1), pages 3-11.
    5. Chien-Ming Chen & Magali A. Delmas & Marvin B. Lieberman, 2015. "Production frontier methodologies and efficiency as a performance measure in strategic management research," Strategic Management Journal, Wiley Blackwell, vol. 36(1), pages 19-36, January.
    6. Satya Paul & Sriram Shankar, 2020. "Estimating efficiency effects in a panel data stochastic frontier model," Journal of Productivity Analysis, Springer, vol. 53(2), pages 163-180, April.
    7. Belotti, Federico & Ilardi, Giuseppe, 2018. "Consistent inference in fixed-effects stochastic frontier models," Journal of Econometrics, Elsevier, vol. 202(2), pages 161-177.
    8. Hakan Güneş & Dilem Yıldırım, 2016. "Estimating Cost Efficiency of Turkish Commercial Banks under Unobserved Heterogeneity with Stochastic Frontier Models," ERC Working Papers 1603, ERC - Economic Research Center, Middle East Technical University, revised Mar 2016.
    9. Roberto Colombi & Gianmaria Martini & Giorgio Vittadini, 2017. "Determinants of transient and persistent hospital efficiency: The case of Italy," Health Economics, John Wiley & Sons, Ltd., vol. 26(S2), pages 5-22, September.
    10. Mai, Nhat Chi, 2015. "Efficiency of the banking system in Vietnam under financial liberalization," OSF Preprints qsf6d, Center for Open Science.
    11. Quang Nguyen & Sean Pascoe & Louisa Coglan & Son Nghiem, 2021. "The sensitivity of efficiency scores to input and other choices in stochastic frontier analysis: an empirical investigation," Journal of Productivity Analysis, Springer, vol. 55(1), pages 31-40, February.
    12. Martín Rossi, 2015. "The Econometrics Approach to the Measurement of Efficiency: A Survey," Working Papers 117, Universidad de San Andres, Departamento de Economia, revised Feb 2015.
    13. Pontus Mattsson & Jonas Månsson & William H. Greene, 2020. "TFP change and its components for Swedish manufacturing firms during the 2008–2009 financial crisis," Journal of Productivity Analysis, Springer, vol. 53(1), pages 79-93, February.
    14. Viktoriya Galushko & Samuel Gamtessa, 2022. "Impact of Climate Change on Productivity and Technical Efficiency in Canadian Crop Production," Sustainability, MDPI, vol. 14(7), pages 1-21, April.
    15. Pontus Mattsson & Jonas Mansson & William H. Greene, 2018. "TFP Change and its Components for Swedish Manufacturing Firms During the 2008-2009 Financial Crisis," Working Papers 18-27, New York University, Leonard N. Stern School of Business, Department of Economics.
    16. Li, Hong-Zhou & Kopsakangas-Savolainen, Maria & Xiao, Xing-Zhi & Tian, Zhen-Zhen & Yang, Xiao-Yuan & Wang, Jian-Lin, 2016. "Cost efficiency of electric grid utilities in China: A comparison of estimates from SFA–MLE, SFA–Bayes and StoNED–CNLS," Energy Economics, Elsevier, vol. 55(C), pages 272-283.
    17. Subal Kumbhakar & Anatoly Peresetsky, 2013. "Cost efficiency of Kazakhstan and Russian banks: results from competing panel data models-super-1," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 6(1), pages 88-113, March.
    18. Valentin Zelenyuk & Zhichao Wang, 2023. "Random vs. Explained Inefficiency in Stochastic Frontier Analysis: The Case of Queensland Hospitals," CEPA Working Papers Series WP052023, School of Economics, University of Queensland, Australia.
    19. Gangopadhyay, Partha & Jain, Siddharth & Bakry, Walid, 2022. "In search of a rational foundation for the massive IT boom in the Australian banking industry: Can the IT boom really drive relationship banking?," International Review of Financial Analysis, Elsevier, vol. 82(C).
    20. Keller, Michael, 2020. "Wasted windfalls: Inefficiencies in health care spending in oil rich countries," Resources Policy, Elsevier, vol. 66(C).

    More about this item

    Keywords

    Cost Efficiency; Size; Group Affiliation; Stochastic Frontier Analysis;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ind:igiwpp:2019-036. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Shamprasad M. Pujar (email available below). General contact details of provider: https://edirc.repec.org/data/igidrin.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.