Understanding US firm efficiency and its asset pricing implications

Giovanni Calice (), Levent Kutlu and Ming Zeng
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Giovanni Calice: Loughborough University

Empirical Economics, 2021, vol. 60, issue 2, No 10, 803-827

Abstract: Abstract We investigate the links between firm-level total factor productivity (TFP) growth and technical efficiency change, and their implications on firm-level stock returns. We estimate TFP growth of US firms between 1966 and 2015 and decompose TFP growth into returns to scale, technical progress, and technical efficiency change components. We show that most of the variation in TFP growth is explained by variation in technical efficiency change. Moreover, we examine the effects of important macro- and micro-level factors on inefficiency as well as its asset pricing implications. We find that low-efficiency firms are more vulnerable to a wide class of aggregate economic shocks, and the well-known five stock return anomalies (Fama and French in J Financ Econ 116(1):1–22, 2015) are more pronounced among those firms. Our results also emphasize the role of macroeconomic determinants of efficiency, and the stability effects of many useful policy targets on firm-level TFP.

Keywords: Asset prices; Efficiency; Frictions; Stock return anomalies; Total factor productivity (search for similar items in EconPapers)
JEL-codes: D22 D24 G12 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s00181-019-01775-5

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