Decomposing total factor productivity while treating for misspecification

Emmanuel Mamatzakis and Mike Tsionas

No 18, Management Working Papers from Birkbeck Department of Management

Abstract: Decomposing firm performance has been challenging for some time. Yet the importance of accurately measuring performance is unequivocal. We propose a flexible functional of total factor productivity (TFP) that measures firm performance and treats misspecification. We argue that measuring bank productivity at global level, which is provided by our model based on bank micro-foundations, is better suited than other measures. Our results suggest that there is not much convergence in TFP across the world, though the technology has positively contributed to bank TFP growth. However, nonperforming loans have had the opposite effect. Furthermore, we show that bank risk-taking and raising capital by equity are negatively related to TFP growth; instead, liquidity has a positive impact.

Pages: 32 pages
Date: 2020-03, Revised 2021-02
New Economics Papers: this item is included in nep-eff and nep-fdg
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Published on Birkbeck Deparment of Management web site, March 2020, pages 1-32

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