Governance Structures, Efficiency, and Firm Profitability

Erik Lehmann (), Jürgen Weigand and Susanne Warning

Papers on Entrepreneurship, Growth and Public Policy from Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group

Abstract: Using a panel data set of 361 German corporations for the period 1991 to 1996 we test the hypothesis that firms with more efficient governance structures have higher profitability. To determine efficiency we compare firms with respect to ownership concentration, the identity of owners, capital structure, investment and firm growth by a multi-input/multi-output Data Envelopment Analysis (DEA). This non -parametric linear programming technique considers both multiple in- and outputs. Based on the concept of pareto efficiency, it computes an efficiency score where the associated weights of the inputs and outputs are determined endogenously. The DEA efficiency scores are then used as explanatory variables in panel data regressions of profitability. Our main finding is that the efficiency scores indeed contribute significantly to explaining profitability differences between firms, even after controlling for industry effects and unobserved systematic firm effects.

Keywords: firm performance; ownership concentration; owner identity; managerial (search for similar items in EconPapers)
JEL-codes: G3 L1 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2004-05
New Economics Papers: this item is included in nep-acc, nep-cfn and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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