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

Kazuo Ogawa

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

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.

Pages: 38 pages
Date: 2021-08
New Economics Papers: this item is included in nep-eff, nep-ent, nep-isf and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:eti:dpaper:21068

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