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What Determines the Technical Efficiency of a Firm? The Importance of Industry, Location, and Size

Author

Listed:
  • Oleg Badunenko

    (European University Viadrina Frankfurt (Oder), Germany)

  • Michael Fritsch

    (University of Jena, Faculty of Economics, Max Planck Institute of Economics Jena, and Institute for Economic Research (DIW Berlin))

  • Andreas Stephan

    (European University Viadrina Frankfurt (Oder) and the German Institute for Economic Research (DIW Berlin))

Abstract

This paper investigates the factors that explain the level of technical efficiency of a firm. In our empirical analysis, we use a unique sample of about 35,000 firms in 256 industries from the German Cost Structure Census over the years 1992-2004. We estimate the technical efficiency of the firms and relate it to firm- and industry-specific characteristics. One third of the explanatory power is due to industry effects. Size accounts for another 25 percent and the headquarters? location explains ten percent of the variation in efficiency. Most other firm characteristics such as ownership structure, legal form, age of the firm and outsourcing activities have an extremely small explanatory power. R&D activity does not exert any positive influence on technical efficiency.

Suggested Citation

  • Oleg Badunenko & Michael Fritsch & Andreas Stephan, 2006. "What Determines the Technical Efficiency of a Firm? The Importance of Industry, Location, and Size," Jenaer Schriften zur Wirtschaftswissenschaft (Expired!) 33/2006, Friedrich Schiller University of Jena, School of of Economics and Business Administration.
    • Handle: RePEc:jen:jenasw:2006-33
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    More about this item

    Keywords

    Frontier analysis; determinants of technical efficiency; firm performance; industry effects; regional effects.;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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